Foulsham: Iremonger Trilogy, Book 2 - Edward carey

In the aptly named borough of Foulsham, Grandfather Umbitt Iremonger has found a way of making everyday objects assume human shape, and turning real people into objects. Lucy Pennant has been discarded as a clay button, abandoned in the Heaps. Meanwhile, Clod has been turned into a gold coin and is being passed as currency through the town. Everywhere people are searching for Clod, who, it is believed, has the power to bring the mighty Umbitt down.