We saw in chapter 3 how one or more very easily marketable commodities were chosen by the market as media of exchange, thereby greatly increasing their marketability and becoming more and more generally used until they could be called money. We have implicitly assumed that there are one or two media that are fully marketable—always salable—and other commodities that are simply sold for money. We have omitted mention of the degrees of marketability of these goods. Some goods are more readily marketable than others. And some are so easily marketable that they rise practically to the status of quasi moneys.

Quasi moneys do not form part of the nation’s money supply. The conclusive test is that they are not used to settle debts, nor are they claims to such means of payment at par. However, they are held as assets by individuals and are considered so readily marketable that an extra demand arises for them on the market. Their existence lowers the demand for money, since holders can economize on money by keeping them as assets. The price of these goods is higher than otherwise because of their quasi-monetary status.

In Oriental countries jewels have traditionally been held as quasi moneys. In advanced countries quasi moneys are usually short-term debts or securities that have a broad market and are readily salable at the highest price the market will yield. Quasi moneys include high-grade debentures, some stocks, and some wholesale commodities. Debentures used as quasi moneys have a higher price than otherwise and therefore a lower interest yield than will accrue on other investments.44

• 44Cf. Mises, Human Action, pp. 459–61.

In previous sections we saw that bills of exchange are not money-substitutes, but credit instruments. Money-substitutes are claims to present money, equivalent to warehouse receipts. But some critics maintain that in Europe at the turn of the nineteenth century bills did circulate as money-substitutes. They circulated as final payment in advance of their due dates, their face value discounted for the period of time left for maturity. Yet these were not money-substitutes. The holder of a bill was a creditor. Each of the acceptors of the bill had to endorse its payment, and the credit standing of each endorser had to be examined to judge the soundness of the bill. In short, as Mises has stated:

The endorsement of the bill is in fact not a final payment; it liberates the debtor to a limited degree only. If the bill is not paid then his liability is revived in a greater degree than before.45

Hence, the bills could not be classed as money-substitutes.

• 45Mises, Theory of Money and Credit, pp. 285–86.