Specie is money that comes in the form of coins. It is made from precious metals, commonly gold and silver. The currency has intrinsic value based upon the metallic content.
Throughout history, specie was inflationary due to the weight element of the coins. As people cut slivers of the coinage off, this intrinsic value decreases. This is commonly why so many older coins are in various shapes and not round. They were carved up over the years as people melted the metal down.
Another way this occurred with simply by the government (King or Queen) having the mint create coins with different metallic compositions. By moving to a less valuable metal, the same result was seen. Since the commodity value was decreased, the newer coins would end up as the circulating supply while the older ones were hoarded.
This is what led to the observation which became Gresham's Law. It is the idea that "bad money will drive out good". The basic premise is that if an individual had two coins which to pay a merchant, the one with the least amount commodity was put into circulation via payment.
Specie is created by the mint, which is usually an arm of the government.
