OH. I

THE CLASSIFICATION OF MONEY

7

most present-day Bank Notes, and even CentralBank Deposits, are here classified as State-Money,whilst Bank-Money (or non-legal-tender money) ismainly composed, nowadays, of Member Bank De-posits . 1 Historically a good many examples of Re-presentative State-Money are descended from somekind of Bank-Money, which by being adopted by theState has subsequently passed over from the onecategory to the other.

(iv.) The Forms oe Money

We are now in a position to proceed to a furtheranalysis having an object different from the above,namely, to classify the three forms which State-Moneycan take, which we may call, for short, CommodityMoney, Fiat Money and Managed Money, the lasttwo being sub-species of Representative Money.

Commodity Money is composed of actual unitsof a particular freely - obtainable, non - monopolisedcommodity 2 which happens to have been chosen forthe familiar purposes of money, but the supply ofwhich is governed—like that of any other commodity—by scarcity and cost of production.

Fiat Money is Representative (or token) Money(i.e. something the intrinsic value of the materialsubstance of which is divorced from its monetaryface value)—now generally made of paper except inthe case of small denominations—which is created andissued by the State, but is not convertible by law intoanything other than itself, and has no fixed value interms of an objective standard.

I think—anything which the State undertakes to accept at its pay-offices,whether or not it is declared legal-tender between citizens.

1 See below (p. 10) for the explanation of this term.

2 Or of warehouse warrants for actually existing units of the com-modity. E.g. American Gold Certificates are best regarded as CommodityMoney.