Sec. 7. #The money-material in its commodity uses#.  We are now prepared to take up the question:  What determines the ratio at which money exchanges for other goods?  And, as money comes to be the unit in which prices are generally expressed, the question becomes:  What determines the general level of monetary prices?  We have this problem in its simplest form in the case of a commodity-money such as gold.  It may be looked upon merely as so much precious metal.  The problem of its value as bullion is the same as that of the value of pig iron or of zinc, of meat or of potatoes.  There is here no special monetary problem.  The value of gold as bullion and its value as money are kept in equilibrium by choice and by substitution.  The several uses of gold are constantly competing for it:  its uses for rings, pens, ornaments, championship cups, photography, dentistry, delicate instruments, and as a circulating medium.  If the metal becomes worth more in any one use, its amount is increased there and is correspondingly diminished in other uses.[3]

When coinage is free and gratuitous[4] the standard money is a commodity.  Such coinage is essentially but the stamp and certificate that the coin contains a certain weight and fineness of metal.  Where coinage is free and gratuitous each coin will be worth the same as the bullion that is in it so far as the citizens exercise their choice.  They will not long keep uncoined metal in their possession when it is worth more in the form of money, nor will they long keep money from the melting-pot when it is worth more as bullion.  Yet there may be a slight disparity between the bullion value and the monetary value before the metal is converted into coin or the coin melted down into metal.

This adjustment of the value of commodity-money to other things is made also on the side of supply, in the use of labor and material agents to produce the precious metals and to produce other things.  Gold-mining, for example, is one among various industries to which men may apply their labor and their available material agents.  Some mines are superior, others medium, others marginal which it barely pays to work.  There is, therefore, a rise and fall of the margin of gold production with changes in prices and changes in the cost of production.  Large new deposits of gold are discovered from time to time and new methods of extracting gold are invented.  If, when it barely pays to work a mine, such changes occur, gold becomes worth less, and the poorer mines eventually must go out of use.  As gold rises in value some abandoned mines again come into use.  A similar variation may be noted in the utilization of marginal land, marginal factories, marginal forges, and marginal agents of every kind.[5]