CHAPTER V.

MONEY.

The subject of Money presents few difficulties, or rather none of any

depth, to one who has thoroughly mastered the subject of Value. To all

others the difficulties are insuperable. Essay after essay and volume

after volume has been written in this country upon Money, by men who

would have become good economists and good monetaries, if they had

only begun their inquiries at the right place and followed them in the

right direction. As we saw in the last chapter that it is impossible

for anybody to understand the subject of Credit without first

comprehending the matter of Value, so we shall see in this chapter

that in the order of Nature Value precedes Money, and that the latter

can only be learned in the light of the former. The logical reason for

this in general is, that Money itself is always a Valuable, and comes

to its function as money only through a comparison of itself with

other Valuables.

The thin difficulties that confront the student of Money, who has

reached the topic along the proper highway cast up for economical

inquiries, arise apparently from two sources; and we will begin our

present discussion by first looking at these in their order.

In the first place, Money is the only Valuable that may belong to two

out of the three possible categories into which Valuables may be

scientifically thrown. All Valuables are either Commodities, or

Services, or Credits. These categories never change places. Once a

Commodity always a commodity, so long as value can be predicate of it;

a personal Service can never take on any other valuable form; and a

Credit is ever a credit, and nothing else, until it is annihilated by

Fulfilment. Now Money is the only Valuable that ever appears in two of

these forms. The same Dollar indeed cannot be both a Commodity and a

Credit; but some Dollars are a Commodity cut out from gold and silver,

and some other Dollars (so-called) are a Credit issued by Government

or parties responsible to government; while Money as a general term

properly enough covers both kinds of Dollars, the Commodity-Dollar and

the Credit-Dollar. In other words, Money is of two kinds, and only two

kinds, either a Piece of valuable metal stamped as to weight and

fineness by the image and inscription of Cæsar,--a Commodity; or a

Promise to pay to somebody some of these pieces,--a Credit. This

unique peculiarity of Money, by which, always a Valuable, it may

appear and does appear in two out of three possible predicaments of

Valuables, makes a little difficulty at the outset of its discussion,

and requires continued care in formulating its scientific

propositions.

In the second place, a more considerable difficulty, and yet a slight

one still, is found in the fact that the choices and the legislations

of men have more to do in shaping the propositions of Money than in

most other economical propositions. It is true, that Nature and men

coöperate in the determination of every case of Value whatsoever;

while there is a difference in the cases, though perhaps not a

distinction, in respect to the fixedness and universality of the

natural laws involved, in contrariety to the purely human impulses

concerned. The Providential elements in Economics, both the social and

the physical, are of course relatively fixed and unchangeable,

otherwise Science could not grapple with and classify them; and so

also are those principles of Human Nature related to exchanges, which

may be said to be _universal_ in their character,--such as, for

example, the preference to receive a larger rather than a less

return-service, and to render a smaller rather than a larger effort;

and at the same time there are other principles of human nature

related to exchanges much more _variable_ in their character than

these, such, for instance, as the nation's choice of the kind of Money

it will use, or the kind of Taxation it will impose. It certainly

follows from this, that some Economical laws must be more _general_

than others, owing to a less variation in the human impulses concerned

in them: it follows, for example, that the law of landed rents, or the

law of the approach of the price of raw materials to that of the

finished products, is more universal in its terms of generalization

than most of the propositions of Money and Taxation can be.

It seems like a paradox, that those parts of Economics in which the

human elements of variable choice may predominate over the relatively

fixed laws of nature and of mind, should be just the parts hardest for

men to catch clearly and hold firmly; because, we naturally think,

that difficulty and mystery are rather to be found in those

departments in which an Infinite Mind has been at work upon an

infinite plan, and that there is no such profundity in the works of

men; but after all, even those natural laws like Gravitation, which

are clear and universal as laws, if they be such as the devices of men

have to do with, such as may be modified and in a certain sense

controlled by human actions, become from that very circumstance liable

to some difficulty and perhaps to some mystery. Now all the truths of

Money, and as we shall see in the final chapter all the truths of

Taxation also, belong to this class of less general generalizations;

still, it is scarcely less than foolish to say, that Money is such an

elusive and ideal agent that nobody can understand it. That is the

language of indolence and lack of penetration. Money is wholly a

matter of man's device, though it comes into constant contact with

something greater and more fixed than itself; it was invented, just as

any other instrument is invented, to accomplish a certain economical

purpose; and it would be strange indeed if men by taking pains could

not perfectly comprehend what men themselves have wholly devised. We

hope, accordingly, in the following paragraphs to clear up completely

to all intelligent readers the whole doctrine of Money. The key to

unlock all the superficial difficulties (and there are no others) is

this: Money is always a Valuable before it becomes money, and

continues a valuable independently of the fact that it _is_ money;

and, it is always one or other of two kinds, either itself a Commodity

or a Promise to pay a commodity. In this chapter, we will not begin

with definitions and justify them afterwards, but will come up to them

step by step, and, as it were, justify them beforehand.

1. Economical Exchanges may begin, be profitable to both parties, and

go forward to a certain extent, without the use of any money at all.

As a matter of fact and probably for a long time, while the

Civilizations were gathering their inchoate forces for a further

progress, men exchanged one Service directly for another without the

intervention of any medium. This form of trade is called Barter. King

Hiram of Tyre furnished to King Solomon of Judea a certain quantity of

cedars from Mt. Lebanon for the building of the new Temple at

Jerusalem, and Solomon in return furnished to the Tyrians a certain

quantity of wheat and oil, Judea being a fertile agricultural country

with no forests, and Tyre a wooded country with no farms. This may

well serve us as an instance of Barter, although Money had been in

current use in those regions a thousand years before, as is seen in

the purchase by Abraham of the cave and field of Machpelah, for which

he weighed out "_four hundred shekels of silver, current money with

the merchants_."

It is obvious, however, that while Barter is a good deal better than

no exchanges at all, there are inherent and immense difficulties in

that form of trade.

(a) Under Barter trade is extremely limited in its _personnel_. Only

those parties can engage in it, each of whom is in position to render

to the other just such a Service as the other is in direct and

immediate need of, and each of whom also wants another Service in kind

and quantity exactly what the second man has to render. It is not

enough under these conditions, that a man should have some Service to

sell, but he must also find some other man, who not only wants that

specific service but who also has some service to render in return

just such as the first man wants. If A has wheat which he wishes to

exchange for a coat, he must first find a party desiring wheat and

also having a coat to sell, and moreover who wants just as much wheat

as will pay for a coat, no more and no less; if he wants more, he may

have nothing to render for the excess which A is willing to accept; if

less, A may have nothing besides wheat with which to help pay for the

coat. Even in the simpler states of Society the inconveniences of thus

hunting up a specific market for each specific service are very great,

and in more advanced states of civilization would become intolerable,

if it were possible (as it is not) for Society to become advanced

under such conditions.

(b) Barter presents insuperable obstacles to trade in point of

_place_. While men still exchanged in kind, as it is called, and knew

no other mode, the purchasing-power of any Service was necessarily

confined to that locality, and would not be parted with except in view

of a return service actually there present in the same place. There

could be no commercial contact without a local contact. The ultimate

parties to every exchange must come together face to face. There could

be no middle-men or distributors. The market was circumscribed to the

hamlet.

(c) Buying and selling under the scheme of Barter is also wretchedly

limited in point of _time_. The fruit-dealer, for example, must

dispose of his product quickly, or it perishes on his hands. So of

many other commodities. If they are to be sold at all, they must be

sold quick. The ultimate buyer must be on hand in time. As the result

of these three concomitants of Barter, ten thousand things that are

now bought and sold to profit never came to a market or thought of a

market, exchanges were so limited in time and place and variety, human

associations were so hampered, and the development of all peculiar

talents so impeded, that one of the initial steps in the progress of

all Civilization has been to hit upon some expedient to lessen these

intrinsic difficulties, and so to facilitate Exchanges.

2. The Invention of Money was nothing in the world but the tentative

selection by certain people in a certain locality of some Commodity

then and there _valuable_, that is, capable of buying _some_ things

then and there, and gradually giving to that commodity by general

consent the capacity of buying _all_ things then and there salable.

The commodity thus slowly becoming money, whatever it was, had and

must have had a _limited_ purchasing-power to start with, because no

instance to the contrary has ever been shown, and still more because

that peculiar comparison between _two_ things that lies at the bottom

in each single case of Value is exactly the same kind of comparison

that holds between money and the _many_ things which money purchases;

given a _valuable_ in common use as a starting-point, and the

transition is easy and natural to a _generalized_ valuable, that is,

to a recognized money; the relation of mutual purchase between the

commodity and _some_ other things was a common fact to begin with, the

making it money was merely the common consent that thereafter it

should have a general purchasing-power within the circuit; so that as

a simple result, whenever anybody had anything to exchange, he might

first exchange it for this selected product, which was valuable before

but is now generally valuable, and then with this money-product in

hand he could buy whatever he might want at any time or place within

the circuit.

It is impossible from the very nature of Value, impossible from that

comparison of two distinct Services, that precedes every Exchange, as

well under Money as under Barter, that anything except a valuable

anterior to and independent of its becoming money, could ever have

become money at all. Money makes no alteration in any law of Value,

but only substitutes for convenience' sake in every transaction in

which it plays a part, a general for a specific purchasing-power; a

book, for example, has a specific purchasing-power, since there is

somebody who wants it, and is willing to give a sum of money for it;

and the owner of the book by the sale of it parts with a product which

has only the power to purchase something from a few persons, and

receives a product in return which has the power to purchase something

from all persons; it is not true to say that the money is worth more

than the book, because they are just worth each other, as is

demonstrated by the sale; but it _is_ true to say that the seller of

the book has substituted in the place of a limited purchasing-power,

of which he was proprietor, a general purchasing-power, of which he

has now become proprietor; that is, that the command of the money,

which has no larger value than the book had, does carry along with it

a superior command over purchasable articles generally. In one word,

Value in the form of money is in a more available shape for general

buying and selling than value in any other form. This is the exact and

ultimate expression for all the truth there is in the common vague

remark, namely, that Money is something different from all other

Valuables; it _is_ different from them in just one respect, namely,

while they have the power of buying some things from some persons, it

has the power derived from the _consensus_ of Society to buy all sorts

of things from all sorts of persons.

This simple change or substitution, which seems in itself so little

and easy and natural, has changed in its ever-enlarging results the

face of the world! It makes the valuable now selected to be money seem

to the minds of men to be a very different thing from what it was

before, although the change in itself is slight indeed. It removes

most of the inconveniences of Barter as by a stroke of the hand. So

soon as a commodity selected to become money by one people comes to be

acceptable as such to all other peoples, as is the case with gold, the

advantages of its use are vastly multiplied to all. Experience has

shown many times over, and reflection will explain to any one, how

that there is no other machine that has economized labor like money;

no other instrument that plays so deep and broad a part in Production;

no invention whatever, unless it be the invention of letters, which

has contributed more to the civilization of mankind. Money makes vast

distances relatively indifferent; for it is sufficient to constitute a

market for any valuable that it is practically wanted anywhere on the

round globe, the middle-man paying the seller for it in money

transports it thither, and receives back his investment with a profit

from the ultimate buyer. So, also, money generalizes any

purchasing-power in point of time. The dealer, exchanging his

perishable products for money, may keep its power of purchase locked

in this form as long as he lists, putting an interval at his own

pleasure between selling and buying, and with this generalized power

in his pocket he may buy when he will and what he will and where he

will. Money, too, makes any purchasing-power portable, divisible, and

loanable. A man may carry the value of his farm in his purse, and may

divide it up for a thousand different purchases, and especially is

able to loan it in this form in order to receive it back again with

interest at a future day.

3. It is important to notice in the next place, that, whatever made

the commodity selected as money originally desirable and valuable, it

has now become desirable and valuable for other and wider reasons. The

tobacco of Virginia, for example, in the early days of that Colony,

became valuable at first on account of the demand for it as a narcotic

both there and in England; but as soon as it was made a legal money in

the Colony by the general consent already described, its value

depended in part upon another set of causes. Of course Demand and

Supply still controlled its value just as before, only certain parties

who had not desired it before as a mere _commodity_ thereafter desired

it as a current _money_. Its convenience and necessity as money

widened the circle of those parties willing to receive it and glad to

render a return for it. It is true, that many now received it only

because they could pay it out again to buy something else with; but

that made no difference so far as Value is concerned; it was valuable

before under a certain limited demand, and continued valuable under an

additional and broader demand; we cannot certainly say, that it became

_more_ valuable under this new and wider demand, because we do not

know how the then combined demand affected the Supply. We may probably

say, that the value became _steadier_ if not _larger_, under the

double demand than under the previous single one; and the vital point

to mark and remember is, that the _value of money_, previously

valuable as a commodity only, is still maintained under the law of

Demand and Supply, just as all other values are, the only peculiarity

being this, namely, as a generalized valuable and consequently a

potent social agent money is in demand by everybody who has anything

else to sell.

It follows from this in necessary sequence, that Money as such,

whatever may have been the ground of its original value as a

commodity, _is always received as money in order to be parted with_.

It is not bought for its own sake to be used and enjoyed, as most

other things are, but is only bought to be sold again. Men will sell

everything to buy it, with the sole intent to sell it again to buy

something else; and the odd thing about it is, that everybody buys it

to sell again, not at all as the speculator buys grain to sell it

again at a higher price by the bushel or centner, but, the money

remaining constant in their minds, they sell for it something they

care less about in order to buy with it something they care more

about. Money, therefore, becomes a _medium_ in men's exchanges. The

word "medium" in this proposition is to be taken in its etymological

and strict sense, as something that comes between two extremes and

serves also to relate them to each other. This is not the ultimate

characteristic of Money, as we shall see, nor can a final definition

be founded here, but it is a good step towards ultimates to see that

money is exchanged for other things as a means and not as an end, that

it is a great help in exchanging all other valuables but is never

exchanged for itself in an ultimate transaction.

Small boys, indeed, sometimes swop cents; but men, the miser excepted,

who is under a deplorable fallacy of the senses, use and estimate

money mainly as the _medium_ that facilitates the real exchanges of

Society. What is actually and ultimately exchanged is the wheat, the

cloth, the lumber, the furniture, the commercial service of every

kind, and Money is but the instrument making those exchanges easy,

which might perhaps go on in part without it, though with difficulty

and loss. In short, money is somewhat like a railroad ticket.

Transportation to a given place is what is really bought when one pays

for a railroad ticket. The proof of the purchase is the bit of paper

exhibited. That comes in as a _medium_ between the traveller and the

railroad company; and while it facilitates the real exchange, it also

partly disguises it. This comparison holds good in the main feature,

but in two respects the resemblance fails: Money is not a specific

ticket for a single purpose, as the pasteboard is, but is a general

ticket (so far as it goes), for all purposes of purchase; and

secondly, Money really stands as a value in its own right (so far as

any single thing can so stand) at the same time it is serving as a

_medium_, while the railroad ticket does not. Still, we are all

desirous to get money, not for the sake of the money itself, but for

the sake of those things which the money will buy. We part with money

freely and constantly for those things which we care more about. What

we exactly care for is what our money will buy, is the conscious

command over all services and commodities which the possession of

money insures to us. If we could give our own commodity or service or

claim, whatever it may be, and receive directly in return the claim or

commodity or service which we want, whatever that might be, there

would be no need of money at all; but this is always inconvenient, and

generally impossible; and, therefore, we introduce a middle term, and

money is found to be a good mean to help exchange the two extremes.

4. We are now getting on towards a just conception and a true

definition of Money, though two or three more points must still be

noted as preparatory to that consummation. As a result of the fact

already reached, that money serves as a _medium_ in men's exchanges,

it follows of course that the power of money as such a medium is

multiplied by what has been called _rapidity of circulation_, that is,

a brisker use of the volume already in circulation will reach the same

end as the increase of its volume. As in mechanics, so in money, the

whole power is the product of mass and velocity. Money also is like

any other tool, the more constant its use the more profitable its

agency. The quick movement of a small mass, accordingly, is better

than the torpid movement of a large mass, both in what it saves of

expense, and in what it presupposes of the general conditions of

exchange. The value of the money-volume of any country is a small

fraction of the aggregate value of those products which the money

helps directly to exchange; and a very small fraction indeed of the

aggregate value of all the products which it helps indirectly to

exchange through Credit by means of its _denominations_. We shall see

better a little farther on, that Money works not only as a medium

direct, itself exchanged against other Services, but also as

furnishing those denominations of Value, like the _dollar_, which are

always used in bargaining; and also used in all cases of Credit, in

which settlement is not made by money but by offsetting one piece of

indebtedness against another, and these denominations can arise only

from the use of money as a direct medium. Therefore, we may say that

the hub and the spokes and the rim of the wheel of exchange consist of

personal services and commercial credits and all material commodities

except money, while, to borrow the famous comparison of Hume, "Money

is but the grease which makes the wheel turn easier." It would be a

vast mistake to suppose, as some of the ancients did, that the grease

is really the wheel.

While Money thus facilitates the revolution of the wheel of Exchange,

it follows too from its nature as a medium, that the dimensions of the

wheel as a whole are vastly greater than they would have been but for

the Money. Money indeed helped to exchange the products that already

existed and were coming into existence at its first invention, but by

far the largest part of products since have come into existence

largely through the agency of Money. We get quite too low a view of

the functions of this potent agent, if we think of it merely as an aid

in circulating products, that would have existed whether or no; some

products would certainly have existed whether or no, and money would

surely be of great use and convenience in helping bring these to the

ultimate consumers; but this is a partial and wholly inadequate view

of the function of Money as a medium of exchange. The fact that such a

medium is in universal circulation, and that the present holders of it

are ready to exchange it against any sort of Services adapted to

gratify their desires, exercises a kind of creative power, and brings

a thousand products to the market which would otherwise never have

come into existence. Since money will buy anything, men are on the

alert to bring forward something which will buy money; and since

Money is divisible into small pieces, an incredible number and variety

of small services are brought forward to be exchanged against these

pieces, for example, into railroad cars and fares of all sorts, which

services we have no reason to suppose would ever be brought forward at

all were it not for the strong attraction of the money.

5. From this last point of view we may gain another closely connected

with it, namely, that Money must be a very important part of the

_Capital_ of the world. We have already thoroughly learned that

Capital is any product outside of man himself from whose use springs a

pecuniary increase. Now any one may see that the monetary medium of

any country is the most active and the most essential and the most

profitable of all those instruments reserved in aid of further

production. The axe, the plough, the spindle, the loom, the wheel, the

engine, are all instruments, are all Capital, and they each aid

respectively some part or parts of the processes of Production; but

Money is a form of Capital which stimulates and facilitates all the

processes of Production without exception. Just as we have seen that

Money is a form of Value generalized, so is it also a form of

generalized Capital, that is to say, it is an instrument capable of

aiding all processes of Production in every department, while every

other capitalized instrument is capable of aiding but few processes in

one department. Without Money, for instance, there could be no

thorough Division of Labor, because there would be no adequate means

of estimating or rewarding each one's share in a complicated process.

By means of Money all services small or great contributing towards a

common product are neatly measured, and may be paid for by some one,

who thereby becomes proprietor of the whole product; or, if the

contributors choose, they may wait till the product itself is sold,

and then the money received is divisible without loss to each

contributor, according to the service rendered. Thus the influence of

Money as Capital pervades the whole field of Exchange from centre to

circumference, facilitating every transfer and stimulating new

transfers.

Now then, if Money be, as it is, a peculiar kind of Capital, since it

is a Medium in all Exchanges, the question becomes pertinent, How much

of it is wanted? Clearly, only _so much_ as will serve the _purposes_

which such a medium is fitted to subserve; there should be enough

fairly to mediate between the Services actually ready to be exchanged

then and there, and also enough fairly to call out other Services

proper and profitable in the then circumstances of Society, and whose

only obstacle to a profitable exchange then and there _is a lack of a

facilitating medium_. All increase of the volume of money beyond this

point, which the very nature of Money itself marks out as the

boundary, leads to a diminution of Value of every part of it, to a

consequent disturbance of all existing monetary contracts, to a

universal rise of prices which are illusory and gainless, to

unsteadiness and derangement in all legitimate business, and to a

spirit of restless enterprise and speculation which seeks to draw off

the excess of money in untried and reckless experiments. The only real

subjects of Exchange are mutual efforts, mutual services, as these are

expressed in Commodities and Services and Credits, and money is the

instrument merely that comes in between the real exchanges to

facilitate them; and, therefore, it seems to be perfectly conclusive

on this point to remark that the quantity of money needed in any

country or the whole world is limited by the number of the services

ready to be exchanged, to make easy the exchange of which is the good

purpose and sole end of Money.

The physical and mental powers of man, which alone can give birth to

commercial services, when considered as they must be in this

connection as belonging to a given number of men at a given time and

place, are strictly limited of course; and although the presence of

money then and there is both a stimulus and an aid to all these men to

bring forward services of all sorts to the market, there are obvious

restrictions both in their powers and in their circumstances; and the

quantity of money needed among them is just that quantity which will

fairly act as a medium in exchanging the services which they are able

and willing to render to each other. All increase in the quantity of

money beyond that point would have, and could have, the only effect of

increasing the nominal Prices of Services, without making the services

themselves any greater in number or better in quality.

It is with Money exactly as it is with any other form of Capital,

allowance being made for the fact that Money is a kind of generalized

capital. To illustrate, How many ships does a commercial nation need

to employ? As many as will fairly take off its exports and bring in

its imports. Ships are wanted for one definite purpose; and when

enough are secured to answer that purpose, all additions will lessen

the Value, that is, the purchasing-power, of ships generally. So of

all instruments whatever. Enough is as good as a feast. Enough is

better than more. In regard to every form of Capital, and consequently

in regard to Money as such, the point of sufficiency is determined by

the quantity of work to be done. And as no law of Congress is required

to determine how many ships are best to do the transportation for the

people of the United States, so no legislation is needed to fix the

amount of Money that is best for the same people, or for any people.

As the people find out for themselves how many steam-engines they want

to do their work of the year, so they find out without any aid from

their legislators how much money they want to make their exchanges of

the year. The less Law and the more Liberty on all such points the

better for all concerned.

Let the reader notice in passing, as a corollary from what has just

been shown, that when forms of Credit like bank cheques come into

growing use to make payments with and settle balances, they displace

to a large extent commodity-moneys, like gold and silver, which would

otherwise have to be employed. Speculations, and even scientific

discussions, over the needful amounts of gold and silver for money in

the United States, have usually overlooked this essential

consideration of displacement; and one result of this has doubtless

been too large a coinage of the precious metals, to the hazard of

their stable value, and especially to the hazard of the permanent

maintenance of the gold standard. Men forget in their zeal for Money

that it is nothing but a Tool, and that the multiplication of tools

beyond the amount of work to be done by means of them always makes the

tools a drug; and they are apt to forget also that the cheaper and

more convenient substitutes for metallic moneys, namely, forms of

Credit, are all the time and more and more taking the place of the

older moneys, which, nevertheless, must still be kept at the

foundation, though a lessened quantity of them be needful for

circulation.

6. We must now carefully sink our analysis one grade deeper, in order

to reach the bottom characteristic of Money, and so to formulate an

ultimate definition of it.

The only quality common to all valuable things is the fact that they

are all _salable_; and if these various and multitudinous valuables

are ever to be made in any way commensurable with each other, it must

be by means of one of their number assumed as a _standard of

comparison_ with the rest. Comparisons can only turn on points of

_likeness._ The single respect in which all valuables whatsoever

resemble each other is their common possession of purchasing-power, be

it more or less. Therefore, as a yardstick, itself possessed of

length, _and because it is possessed of length_, if assumed as a

standard of comparison with other objects that have length, may be

used to measure all such objects whatsoever, and may accurately

express in units or fractions of itself the simple length of anything

and everything; so, any valuable may be selected as a _standard_ with

which to compare all other valuables, and by means of the terms of

which to express numerically the reciprocal relations between all

valuables whatsoever. This is just what is done whenever any valuable

is selected as Money; and this is the exact and single purpose of such

selection.

What is the precise change, then, in the valuable chosen as Money when

it becomes money? This: it was a valuable before, else it could not by

any possibility serve the present purpose, but now it has become a

_standard_ valuable, with which other valuable things may be compared

in the single point of their _value_. Valuables are now commensurable.

That is all. But that is a great deal. As we have already learned to

the nail, Valuables are all Services; and now some one Service has

been selected from the rest, capable in its very nature of _measuring_

all the rest, and so capable of becoming immensely _useful_ to

mankind.

What, accordingly, is the bottom characteristic of Money? And where

shall we find the terms for an immutable definition of it? _The core

of Money is this quality of being a Measure of Services, taken on in

addition to the usual and universal qualities constituting anything a

Valuable._ This additional quality arises under the choices and action

of men, just as the ordinary qualities constituting anything a

valuable arise under the choices and action of men. But it is an

_additional_ quality, distinctly conferred, and vastly important. The

valuable chosen as Money was a Service to start with, was constantly

rendered as such then and there, and was consequently fitted by

qualities already possessed to assume a further and a _unique_

quality, namely, the capacity to measure and express relatively to

itself all other valuable Services whatever.

As each and every Valuable is the outcome of a _comparison_ instituted

by two persons as between two things, as is thoroughly unfolded in the

first Chapter, it is not at all strange, rather it is natural and

inevitable, that there should arise in connection with Valuables as a

whole class some such further _comparative_ measure, as Money is now

shown to be; because, without some such common measure of Services in

general, itself a Service of the same kind, it would be inconvenient,

not to say impossible, to carry on any considerable traffic anywhere.

For instance: a baker has only loaves of bread, and wishes to buy a

hat, a horse, a house. How many loaves shall he give for each? Unless

there be some common Service, in the terms of which these differing

Valuables can be expressed, and by means of which they can be brought

into commercial relations with each other, it would be an awkward

piece of business to effect even the _three_ exchanges; and every time

the baker wished to buy another article, there must be a rude and slow

calculation from independent data, in order to decide upon the terms

of the exchange. Let now some Common Service be introduced, in the

terms of which each of these values can express itself independently,

and the difficulty disappears in an instant. "My loaves are worth ten

cents each," says the baker. "My hat is worth ten dollars," says the

hatter. Their saying so does not indeed _make_ it so; that matter is a

preliminary; but each has come to that approximate conclusion by a

relatively easy comparison of two Services, his own and another common

one; and if the loaves will duly bring ten cents and the hat ten

dollars, the terms of their own exchange are one hundred for one, and

there is no need of parleying. So of the rest; so of everything that

is ever bought and sold. Money becomes by common consent a Measure of

them; because it measures them, it makes the interchange of them a

very facile matter; because it measures them, it easily becomes a

medium between them; and, accordingly, because the money rendered is

itself a Service, it is a natural and universal measure of all other

Services.

MONEY IS A CURRENT AND LEGAL MEASURE OF SERVICES. With this final

definition of "Money" the writer is more than willing to take all the

risks. It was new when propounded many years ago in one of the

editions of his earlier book. All subsequent testings of it in form

and substance have but confirmed the original confidence in it. The

word "legal" in this definition is not always to be pressed to its

utmost signification, but denotes anything sanctioned by law or usage

_equivalent to law_. The other words are to be taken in their full and

technical meaning. It is believed that, while this definition is short

and simple, it just covers the whole ground and no more. It is not

enough that a certain valuable be "legal" as Money; it must also be

"current" in order to be a true money. In the United States between

1862 and 1879, to take an example, gold coins, though legal tender all

the time for all debts public and private, were not "current" in the

full sense of that term, and hence were _not_ the Money of the

country. Till the last-mentioned date, the gold dollar of 25-4/5

grains standard fine was required by law to pay customs-taxes with and

the interest on the public debt, and was used to a small extent in a

few branches of private business, and was not otherwise in the hands

of the people. These dollars, accordingly, were not strictly money,

but bore a premium over the "current" money of the country. To be

Money, then, a Valuable must be recognized as money by law or custom

as strong as law, and also circulate among all classes of the people

as a medium in their exchanges.

But we are bound to observe that Money becomes a _medium_ in men's

exchanges, because it first became a _measure_ in their Services. Some

economists think that these two functions are separate, and are of

equal rank; but it is easy to see that one only is original, and that

the other is derived from that. Even Aristotle perceived that Money is

a Measure, inasmuch as he defined property "_anything that can be

measured by money_." We may be pretty sure, in opposition to Professor

Jevons, in his Money and the Mechanism of Exchange at page 13, who

thinks there are _four_ characteristics of Money, that Money as such

has but _one_ primary characteristic difference from other forms of

Value, namely, this _measure_-quality, this _standard_-quality, this

publicly recognized function as a _common measure_ to which all other

valuables are constantly referred. This additional attribute put upon

a money-valuable by law or custom is not what _makes_ it valuable,

since an ounce of uncoined gold standard fine is worth within a very

small fraction as much as an ounce of gold coins, but it makes the

money a far more convenient instrument to purchase with, inasmuch as

money, having now the attribute of making all other valuables easily

commensurable with itself, becomes at once something which everybody

is ready to receive, because everybody knows in general what its power

will be to purchase all other things. In other words, Money becomes a

_medium_ in exchanges just because it has already become a _measure_

of Services in general; and there are not consequently two prime

functions of Money, still less four, but only one. This view seems to

simplify the whole subject of Money very much; and we may be sure that

it will be found to be scientifically correct, and that we shall find

many means of testing its accuracy as we go on.

To maintain, as we do, that "Money is a measure of Services," is much

better than to say, in connection with many economists, that "Money is

a Measure of Value." That phrase is objectionable because Value is

always relative to two Services exchanged for each other; and to say

that money is a measure of that _relation_ is neither so simple nor so

ultimate as to say that it is a measure of each of the Services

entering _into_ that relation. The Services may be conceived of and

spoken of separate from the Value into which they merge, although they

come into existence solely for the sake of that resultant Value, and

it is more exact and final to propound that Money, itself a Service,

is a measure of all other Services considered as constituent elements

of the Values into which they fall. We are not without strong hopes,

accordingly, that competent economists will concede, that here is a

radical improvement in the nomenclature of our Science.

In the place of our expression and definition, and the foregoing

explanation consequent upon its use, President Walker in his Money,

pages 280 _et seq._, prefers the mathematical and excellent phrase,

"_the common denominator in exchange_"; Professor Bonamy Price, in his

Practical Political Economy, page 363, shows his fondness for the

formula (and it is a good one), "_the tool of exchange_"; and Henry

Dunning Macleod, in his Elements of Banking, page 17, insists with

much less reason, that "_Money is the representative of Debt_." He

says: "The quantity of money in any country represents the amount of

Debt which there would be if there was no money; and consequently

when there is no debt there can be no money." The unfortunate use by

some countries of a paper money, which is indeed a form of debt, gives

some plausibility to the notion that Money is a representative of

Debt; and perhaps the fact that Money is often used to pay debts

previously contracted, and that debts are almost always contracted in

the terms of Money, may give some additional plausibility to this

view; but as Macleod himself goes on to say that "no substance

possesses so many advantages as a metal for money," and that "all

civilized nations therefore have agreed to adopt a metal as money, and

of metals, gold, silver, and copper have been chiefly used," we do not

see how he can logically hold that a gold dollar, or a gold sovereign,

whose value is as substantive and independent as that of any Valuable

in the world can be, becomes through coinage and circulation "a

representative of Debt." Instead of saying as he does, "where there is

no debt there can be no money," it may be confidently asserted on the

other hand, where all transactions are settled at once in solid money

there can be no debt.

7. Having thus looked into the nature of Money, and seen what is its

one essential characteristic, and its one obvious and universal

function as the result of that, it will help us now in our further

discussion, to examine some of the material commodities that have

served as Money at different times and places.

_Cattle_ appear to have been the earliest money of which there remains

any record. Homer, near the middle of the sixth book of the Iliad,

indicates in the following lines that oxen were an incipient money in

the Heroic age:--

"Then did the son of Saturn take away

The judging mind of Glaucus, when he gave

His arms of gold away for arms of brass

Worn by Tydides Diomed,--the worth

Of fivescore oxen for the worth of nine."

We cannot certainly infer, when it is said in Genesis that "Abraham

departed out of Egypt very rich in _cattle_ and silver and gold," that

any of these were anything more than articles of valuable merchandise;

but on the other hand it is certain from the Latin name of Money,

_Pecunia_, which is derived from the root _pecus_, which means

"_cattle_," that Cattle were the Money of the early Romans; and Pliny

writes expressly that King Servius Tullius stamped the first bronze

money of Rome with the _image of cattle_, undoubtedly indicating by

that some equivalence in current value between the two. At any rate

cattle have been used as Money among pastoral peoples very widely in

place and in time, and are still so used in various parts of Africa.

In the region of the Euphrates and Tigris the precious metals became

money in very remote antiquity; for the art of coining, and all other

arts, came thence westward to the Greek cities of Asia Minor, and to

Greece itself, and we learn that Pheidon, King of Argos, coined silver

money on a scale derived from the East in 869 B.C.; and a better proof

still is the fact that burnt clay tablets are found in the Royal

Library at Nineveh, discovered by Layard, which are really

credit-money, notes issued by the Government, and made redeemable in

gold and silver money on presentation at the king's treasury. Tablets

of this character are extant bearing date as early as 625 B.C. But the

gold and silver money must have been circulating a long time in their

own right as valuables, before such a credit-money, such a

promise-money, as those tablets are, could have originated in

connection with them. Abraham, who himself migrated from "Ur of the

Chaldees" about 2000 years B.C., not long after reaching the

Mediterranean, "weighed unto Ephron the silver which he had named in

the audience of the sons of Heth, four hundred shekels of silver,

current money with the merchant." This is expressly said to be "money"

and "current money." Perhaps it was coined money. At any rate, it was

cut and piece money. It was indeed weighed out, and not counted out.

This is still the more accurate and speedy manner, when the facilities

for the weighing are present. The Bank of England at this day weighs,

and not counts, the coins received and paid out. The Romans first

coined silver money in 269 B.C., and gold money in 207 B.C., and gold

coins were stamped in Greece about the time of Alexander the Great,

say 333 B.C.

Other metals than those called precious were also early used as money.

Long before Pheidon's silver coinage in Greece, _copper skewers_ were

used as money in that country, of which six made up a _drachm_, which

was afterwards both a coin and a unit of weight, the coin being worth

about 17 cents of our money, and the weight being about 66 grains

avoirdupois. The word drachm is derived from ~dragma~, _a handful_;

and the sixth part of it, called an _obol_, from the Greek word

meaning a _spit_, became also both a coin and a weight, all which

makes it evident that these were used in connection with roasting

meat, and that one skewer or obol was originally a unit both of value

and of weight. In Adam Smith's day, in certain districts in Scotland,

_nails_ were still used as small money, which is a forcible reminder

of these old Greek skewers. Iron became money in Sparta; money of lead

was known to the ancients, and is still current in the Burman empire;

the earliest Roman coins were of copper, which were cast rather than

stamped, for no die would have sufficed for pieces so large and heavy,

and the _denarius_ was the unit divided into ten _asses_, the

_denarius_ being nearly the equivalent of the Greek _drachma_ whether

of copper or silver, because the Romans reckoned from the first the

ratio of copper to silver as 250:1; bronze is a mixture of copper and

tin, and brass of copper and zinc, and copper coins with both these

admixtures--used for the purpose of hardening the copper, it being a

general law of metals that a mixture of two is harder than

either--have been very common in ancient and modern times; Sicilian,

Roman, and old British coins of tin alone are known to have been

struck; and Herodotus makes the statement that the Lydians of Asia

Minor were the first to make a coinage of _electrum_, which, as some

claim, was a mixture of gold and silver, and of which ancient

specimens are still existing.

Cowry _shells_ are still used in the East Indies, and also in Africa

in the place of small coins, and have sometimes been imported into

England from India to be exported in trade to the coast of Africa,

being reckoned in Bengal at about 3200 to a silver rupee, which is

about 46 of our cents. The New England Indians also used beads or

shells of periwinkles (white) and of clams (black), of which 360 made

up a belt of _wampum_, as they called it, the black being counted

worth twice as much as the white; and the English colonists accepted

the wampum in their exchanges with the Indians, regarding a string of

white as equal to five shillings, and a string of black to ten

shillings, and afterwards made it legal tender among themselves for

small sums, and even counterfeited it. Cakes of _tea_ have passed as

money in India, and elsewhere; and it is said, that at the great

annual fair at Novgorod, in Russia, the price of tea has first to be

determined before the prices of other things can be settled upon,

since that is a kind of standard of Values in that great mart. _Salt_

has been current money in Abyssinia; _cod-fish_ in Ireland and

Newfoundland; and _beaver-skins_ in New Netherlands, New England, and

the western parts of America.

We do not here try at all to give a full list of the things that are

known to have been used in the early states of society as money; and

there would be no ground for surprise in any list, however large and

varied, when we remember how great is the need of some such form of

value generalized in order that exchanges may grow to any considerable

size and vigor. Two points only need now to be noted, (1) that the

tendency everywhere has been sooner or later to come to the metals as

the best form of money, and among the metals to reach gold and silver

as the only ultimately satisfactory materials for Money; and (2) that

no instance has ever been found in the whole stretch of inquiry over

all the earth, of anything becoming a Money that had not been

previously a Valuable. We might be perfectly sure of this beforehand,

without any search at all among the moneys of primitive times and

states of civilization, because, from the _very nature of the case_

nothing could ever serve the purpose of Money except what was already

a valuable to make the comparison with,--nothing could ever possibly

serve as a measure of services except a service. It has several times

been claimed, that actual exceptions to this law have been

historically discovered, but when the alleged exceptions have been

closely scrutinized they have been found to be apparent only. To take

two or three of the most plausible examples: the Carthaginians had a

kind of leather money, which originally enclosed bits of the precious

metals, and circulated in virtue of them, though they afterwards came

to circulate as bits of leather only, as counters and pledges, in a

way that will be explained later. According to the Venetian traveller,

Polo, China had in the thirteenth century a money made of the bark of

the mulberry tree, cut into round pieces and stamped with the name of

the sovereign, which money it was death to counterfeit or to refuse to

take in any part of the empire. If we had the whole history of this

money, it would surely ally itself either with the other

commodity-moneys now being treated, or with the modern credit-moneys

made legal tender to be treated hereafter. It is just as certain as

anything can be, that these circles of stamped bark did not start out

as money in their own right. The French writer, Montesquieu, asserted

that there was in use in the last century among the people of the

coast of Africa, what he called "an ideal money," "a sign of value

without money," the unit of which was called a _macoute_, which was

subdivided in ideal tenths, called _pieces_. This statement was

startling, as implying a denomination without the thing denominated,

as implying a standard of value which had no basis in a valuable

thing. It was afterwards discovered, however, that this money of

account had its origin, just as we should suppose it must have had, in

an actual _macoute_, a piece of stuff, a fabric, which they had used

first as a commodity-money, and afterwards its _name_ as a money of

account. A valuable thing may become money, and then its name may

become a _denomination_ of value, and still later a bit of leather or

a bit of paper may be called by the same name, and in a certain sense

take the place of the same thing. All this will be as clear as day

pretty soon.

8. Contrary to what has often been affirmed by Economists, the real

measure of Services is the service itself, the _thing_-dollar and not

the _denomination_-dollar. The denominations are used in bargainings

and calculations as representatives of the money itself, and thus

indeed in a secondary sense serve as _measures_; but the subtle

connection between the thing and its name, between money and its

denominations, and the differences between the two, need to be clearly

unfolded, because most of the current fallacies about money take their

rise just at this point. An illustration will best serve us here. The

original measure of Services in France and England and Scotland was

the pound weight of silver. No coin of that weight was ever struck;

but the pound of silver was cut into 240 coins called pence. Twelve of

these pence were called a _solidus_ or shilling. Thus, as applied to

silver, the symbols lb. and £ denoted equivalent weights, the former

of uncoined metal, the latter of metal coined. But in course of time,

more "pence" than 240, and at last in Elizabeth's reign 744 "pence

were coined out of a lb. of silver." Yet all the while 240 of these

pence were called a £. £ and lb., both a contraction of the Latin

_libra_, were no longer equivalent. The lb. of weight continued

stable; the £ of money had dwindled to less than one-third. Yet the

_name_ pound continued to attach to 240 pence, although the pence

embodied a less and less quantity of silver. Each actual penny had

less silver in it, and though it was still called a penny as before,

the _denomination_, though spelled and sounded as before, represented

less silver, and therefore less _value_, than before. The

denominations, then, always follow the fortunes of the coins, whose

names they are, to the frequent loss and shame of the unthinking, who

suppose the same _name_ must represent the same _thing_. Unfortunately

it does not.

Take another illustration. In 1834 the gold eagle of the United States

was reduced in weight from 270 to 258 grains troy, and the alloy

increased from one part in 12 to one part in 10. These changes took

out more than 6 parts of gold from every 100 parts in all the gold

coins of the country. Yet all these coins bore the same names as

before. The things denominated changed, but the denominations changed

not. Other things remaining equal, the coins lost six _per centum_ of

their purchasing-power, or in other words, general prices rose in that

proportion; the _measure_ became so much smaller; and the names,

_eagle_, _dollar_, outwardly unchanged, varied simultaneously and

equally with the change in the coins.

Also, coins are liable to change in their function as a measure of

general Services from unavoidable changes in the general

purchasing-power of the precious metals themselves. If for any reason

an ounce of gold will buy less of general Services than formerly, of

course the coins cut from that gold will buy less than formerly; and

this change in the _measure_ is followed instantly and inevitably by a

corresponding change in the meaning, though not in the spelling, of

the _denomination_. Not so with all other tables of denominations.

These have a _basis_ independent of the things which they help to

measure. The French _metre_, for example, is not variable by the

lengths or breadths or heights of the things it measures, but is an

invariable unit of length the world over; so is one of Troughton's

inches; but this feature does not hold at all of the denominations of

Money; because _sovereigns_, _dollars_, _marks_, _francs_, are

denominations of _Value_, which is itself a variable relation. Such

denominations, consequently, are _not_ an independent standard to

which values themselves can be referred, as lengths are referred to

metres and inches, but vary with the varying purchasing-power of the

coins themselves. The "_dollar_," as a denomination, means more or

less, just according as the "DOLLAR," as a coin, buys, that is,

measures, more or less.

Still, essential as is the point now made to any just understanding of

the subject of Money, it is vastly important for all the interests of

Exchange that the accepted measure of Services be as little liable to

fluctuations as possible, especially in all cases in which lapse of

time is involved before the exchange is fully consummated. An

inflexible standard there cannot be from the very nature of the

measuring, but also from the very nature of all measuring, the

money-standard should be and should be kept as nearly inflexible as it

possibly can be. For the same reason in kind, only multiplied a

thousand-fold in force, that the bushel-measure should be of the same

capacity in sowing-time and in harvest-time, to sell and buy by,

always a bushel, no more and no less; and the yard-stick an inflexible

measure of length, always 36 of Troughton's inches, no more and no

less; so, as far as it is possible in the nature of Values, ought the

current measure of Services, and hence its denominations, to

represent, year in and year out, a uniform degree of purchasing-power.

9. This brings us logically to the historical fact, that, no matter

what measure of services any people may have adopted in their

primitive times, there has always been a steady force at work tending

to displace these in favor of gold and silver. This has become the

universal result the world over among all advanced peoples. Governor

Bradford in his History of Plymouth Colony gives a quaint account of

the origin of money among the Pilgrims, and in connection with that of

the fee-simple in lands: "_The Pilgrims began now highly to prize corn

as more precious than silver, and those that had some to spare began

to trade one with another for small things, by the quart bottle and

peck; for money they had none, and if any had, corn was preferred

before it. That they might, therefore, increase their tillage to

better advantage, they made suit to the governor to have some portion

of land given them for continuance and not by yearly lot, for by that

means that which the more industrious had brought into good culture

(by such pains) one year came to leave it the next and often another

might enjoy it; so as the dressing of their lands were the more

sleighted over and to less profit; which, being well considered, their

request was granted._"

The neighboring Colony of Massachusetts, settled about ten years

later, used Bullets for small change, reckoning them at a farthing

apiece, and made them legal tender for debts of less than one

shilling; for larger exchanges Wampum and Beaver-skins were long used;

but the steady force just spoken of induced Massachusetts in 1652 to

supplant these with a silver coinage of her own, called the Pine-tree

shillings and sixpences and threepences and twopences. This mint

existed (sometimes idle) for over 30 years, but all the pieces coined

bore the dates of 1652 or 1662. In 1691, the two Colonies were forced

into one government through a new charter granted by William and Mary;

and after lengthened trials of inferior moneys, not needful to be

described now, Massachusetts determined in 1749 to have no other than

silver money circulate in the Colony, and became thereafter till the

Revolution the so-called "Silver Colony," and business rapidly and

steadily revived and enlarged in consequence of the change, and in

contrast with the rest of New England.

Gold and silver, thus ever urging their way in to take the place of

tentative and transient standards, and ever coming back again to stay

if displaced for a time by cheaper and changeable moneys, have never

been anywhere of equal value, weight for weight. An ounce of gold has

always been more valuable than an ounce of silver. Probably in the

Euphrates country where coinage began, and certainly in Asia Minor

deriving thence its weights and measures, gold was strictly the

standard with silver as subsidiary to that; in Greece, when Philip's

victories established a double standard there, gold was reckoned

relatively to silver as 1:12-1/2; in the Roman world, where silver had

been the standard after 217 B.C., Augustus Cæsar legalized gold as a

co-standard in the ratio of 1:12; in 1717 a double standard was

established in Great Britain, gold being rated in the coinage as

1:15-1/5 of silver, but in 1816 by a law still in force, gold was made

the sole standard for the United Kingdom, the legal use of silver

being limited to 40s. in any one payment; in France the legal relation

of gold to silver was fixed in 1803 as 1:15-1/2, and so continued till

1876; in the United States the ratio first established, in accordance

with the recommendation of Alexander Hamilton as Secretary of the

Treasury, was 1:15, but in 1834 this was changed to the relation of

1:15.98, and so it remains to this day; in 1871, the new German Empire

adopted the sole gold standard, and limited silver to the amount of 20

_marks_ in any one forced payment, still allowing the old silver

_thaler_ to circulate at the rate of three marks to a thaler; and

since 1875, the Scandinavian Union permits gold alone to be coined for

private persons, and limits the debt-paying power of silver to 20

_crowns_. A crown is 26.78, and a mark 23.82, of our standard cents.

Moreover, the relative value of gold in silver never continues the

same for any great length of time, even after the law has sought to

ascertain and fix it. Indeed, any law fixing the ratio between the two

has very little, if any, effect towards maintaining the ratio. Demand

and Supply determine the value of the precious metals each in each at

any one time as absolutely as they decree the value of Hindoo rice in

silver. France managed to maintain her legal ratio at 1:15-1/2 for 73

years, because all the conditions were on the whole favorable; but

when the Germans threw a portion of their silver on the world's market

in hopes to reach the single gold standard, and the mines of Nevada

poured forth on the same market their millions of silver, the ratio

could no longer stand, the right of private individuals to have silver

coined for them was taken away in behalf of the government, and only

the five-franc silver pieces continued to be legal-tender to all

amounts, the other silver coins becoming then (1876) only legal to pay

debts to the amount of fifty francs. A franc is 19.29 of our standard

cents.

And this brings us to notice what are called _subsidiary coins_.

France, England, Germany, and the United States have debased their

smaller silver coins in weight, so that the _nominal_ value of these

coins is from 7 to 15% above their _bullion_ value. For example, two

halves, four quarters, ten dimes, of our silver since 1875 weigh 385.8

grains, which is also the exact weight of the French five-franc piece,

while our standard silver dollar weighs 412-1/2 grains, both 9/10

fine, so that our "subsidiary" silver is debased in weight 6.48%.

There are three advantages in thus treating the smaller silver: (1)

there is so much clear profit to the Government minting them, thus

lessening taxation; (2) a security to the peoples that they shall not

lose their convenient small change by export to neighboring countries;

and (3) this scheme allows a very considerable rise in the market

value of silver without tending to throw the subsidiaries out of

circulation. As these are never legal-tender except to very small

amounts in domestic trade, there are no serious objections to their

use in limited quantities. The English can pay debts in their silver

to the amount of £2, and we in ours to the extent of $5. Coins of

copper and of other inferior metals are also _subsidiary_ in principle

and motive. Our 5-cent and 3-cent nickel pieces are 75 parts copper

and 25 parts nickel, and the 1-cent piece is 95 parts copper and 5

parts tin-zinc; and debts of 4 cents can be paid in 1-cent pieces, of

60 cents in 3-cent pieces, and of 100 cents in 5-cent pieces.

10. The steady experience of civilized men for two milleniums and a

half seems to demonstrate, that gold and silver constitute the best

Money; and we must now investigate the reasons, one by one, _why_

they are the best money. The reasons appear to be three. Of these the

first is by much the most important.

(1) The first and main reason why gold and silver make the best money

is to be found _in their comparatively steady general Value_. Since

Money is a Measure of all other valuables, its success as a measure

must depend on its own _steadiness_ of value, and gold and silver meet

this test better than anything else. Money is a valuable, and not in

any sense a _representative_ of value; except as to the subsidiaries,

a coin does not owe its value at all to the _stamp_ impressed upon it

or to the _law_ authorizing it, since the metal in it is worth as much

out of the coinage as in it; coin-values arise under the same

conditions as all other values, and are variable by any change in any

one of the four elements which alone can vary the value of anything;

and it would seem that nothing more is needed in order to remove the

last vestiges of the dark cloud which has so long overhung this

subject of Money, than to familiarize ourselves first of all, as we

have already done, with the true doctrine of Value in general, and

then to hold fast the truth exemplified on every hand, that the value

of Money is just like every other value. Let us examine then, first,

why the value of gold and silver is so steady.

(a) On account of the comparatively steady Demand for these metals.

Gold and silver are wanted for two general purposes: first, to be used

as money, and second, to be used in the arts; and the usual estimate

is, that about 2/5 of the aggregate quantity in the world is in the

form of money, and the other 3/5 in the form of plate and utensils and

ornaments. Now, so far as the element of Desire controls Value, the

purpose for which any article is desired is a matter of indifference.

The aggregate desire for it for all purposes, accompanied with the

offer of something with which to buy it, constitutes the Demand; and

the more universal the desire, no matter for what use, the steadier

the Demand and so far forth the steadier the Value. It is a point

still too little noticed, that the combined demand for the precious

metals for all uses is what helps determine their general value, and

not the demand for them as coin alone; just as the value of barley is

regulated partly by the demand for it for food, and partly by the

demand for it for malting purposes. Hence an ounce of bullion of the

standard fineness destined for the smelting-pot of the artisan is

worth within a very trifle as much as an ounce of coined money.

For example, by the law of the Bank of England an ounce of standard

gold (11/12 fine) is coined into £3 17s. 10-1/2d., and the Bank is

obliged to buy all bullion and foreign coins of the standard fineness

offered to it at £3 17s. 9d. per ounce,--a difference of only three

half-pennies. Now, gold and silver are so indispensable in the form of

money, so beautiful in the form of ornaments, so well adapted to serve

the purposes of luxury and love of distinction, and so really useful

in the arts, that the Demand for them is constant and well-nigh

universal; and should there be in the progress of civilization a

lessened demand for them for purposes of personal ornamentation and

luxury, and a less quantity be required for coins on account of the

multiplied use of cheques and other credit-forms, as seems likely in

both cases, a greater quantity will doubtless be required for all the

other uses old and new, and so, as the Demand in the past has been

steady, and probably steadily increasing, there is every reason to

expect the same course of things for the time to come. Moreover, it

contributes to the steadiness in value of the gold and silver coin,

that there is at hand at all times, in the form of plate, a reservoir

from which a chance chasm in the coin may be replenished, or an extra

demand for it answered.

(b) On account of their tolerably uniform Cost of Production. Not

Desires only but Efforts as well determine Value. Supply is the

correlative of Demand; and when to a steady demand there answers a

steady supply realized under conditions of pretty uniform difficulty,

there will be as a matter of course a pretty steady Value. Nature

herself, that is to say, God himself, has indicated in a manner not to

be mistaken the intention, that these precious metals should be the

Money of the nations. They are scattered all over the earth, and so

scattered that the cost of their production has been on the whole

pretty steady ever since civilization and commerce began in earnest.

God is a God of order throughout all His works. Corresponding to the

nature and necessities of men is the whole structure of the outward

world. Science builds only on these predetermined lines of Order.

Induction is only possible where original Resemblances run through

great departments of phenomena. To be enabled to buy and sell to any

considerable extent in order to meet their subjective wants, men must

have an objective measure of mutual Services, and this measure must be

a valuable steady in its purchasing-power: very well; such a possible

measure was all provided for beforehand, when the foundations of the

earth were laid.

The precious metals have always been obtained in one or other of two

ways: by surface diggings and washings, and by rock-mining. Both were

employed in the very beginnings of Civilization. There is a

description in the book of Job (chapter xxviii) of the way in which

the ancient mines were wrought, and of the worth of the ores:

"Truly there is a vein for silver,

And a place for gold, which men refine.

Iron is obtained from earth,

And stone is melted into copper.

Man putteth an end to darkness;

He searcheth to the lowest depths

For the stone of darkness and the shadow of death,

From the place where they dwell they open a shaft.

Forgotten by the feet

They hang down, they swing away from men.

The earth, out of which cometh bread,

Is torn up underneath, as it were by fire.

Her stones are the place of sapphires,

And she hath clods of gold for man.

The path thereto no bird knoweth,

And the vulture's eye hath not seen it;

The fierce wild beast hath not trodden it;

The lion hath not passed over it.

Man layeth his hand upon the rock;

He upturneth mountains from their roots;

He cleaveth out streams in the rocks,

And his eye seeth every precious thing;

He bindeth up the streams, that they trickle not,

And bringeth hidden things to light."

These methods and difficulties in rock-mining, thus poetically and

beautifully delineated, have been substantially the same from that

early day to the present time; and, consequently, there have been but

two or three striking changes in the general value of gold and silver

in the commercial world during the last 500 years, at least changes

owing to easier and larger Supply. The discovery of the mines of

Potosi in 1545, and the large influx of silver into Europe from those

and other American sources, together with the irrational stimulus

thereby given to the working of European mines under the false

impression not even yet wholly dissipated that Value can be clutched

bodily in mining, so increased the stock of silver, that its value as

measured in grain or other commodities declined in Europe in 70 years

after 1570 to about 25% of its previous purchasing-power. Adam Smith

expresses the opinion in his Wealth of Nations, that silver did not

perceptibly fall before 1570, nor continue to fall further after 1640.

The discovery of gold deposits on the Pacific coast of the United

States in 1848, and a similar discovery in Australia in 1851, enlarged

the annual supply of gold for the world from $40,000,000 in 1848

(_Chevalier_), to an average of $136,000,000 for the five years ending

in 1859 (_Jevons_); and the latter writer estimated the fall of gold

in general commodities from 1845 to 1862 at about 15%. But with

exceptions like these, and similar ones are perhaps not likely to

recur, the precious metals have always maintained and seem likely to

maintain in the future a considerable uniformity of Value, as

estimated by their power to purchase other valuables, so far forth as

Cost of Production goes to determine their value. Even the great

changes just noted in the cost of the metals issued only gradually in

a rise of Prices, which many were able to foresee and thus to provide

for, but by which many more were caught and brought into distress and

even pauperism. The two classes that suffer the most under a fall in

the Value of Money are the wages-receivers and the holders of long

annuities and other similar obligations.

(c) On account of their Quantity. The amount of gold and silver in

circulation in the commercial world, to say nothing of the quantity so

easily brought into circulation from the reservoir of plate, is so

vast, that it receives the annual contributions from the mines much as

the ocean receives the waters of the rivers, without sensible increase

of its volume, and parts with the annual loss by detrition and

shipwreck, as the sea yields its waters to evaporation, without

sensible diminution of volume. The yearly supply and the yearly waste

are small in comparison with the accumulations of ages; and,

therefore, the relation of the whole mass to the uses of the world,

and the purchasing-power of any given portion, remain comparatively

steady. It is probable, that production at the mines might cease

altogether for a considerable interval without very sensibly enhancing

throughout the commercial world the value of gold, as it is certain,

from experience, that a production very largely augmented only very

gradually and after a considerable interval of time diminishes its

value. The mass of the precious metals has been aptly compared with

the heavy balance-wheel in mechanics, which preserves an equable and

working condition of the machinery under any sudden increase of the

power, and even when the power is for a moment withdrawn.

Just at this point a caution is needful. Because it is affirmed that

the great amount of the precious metals is a ground of their firm

value, it must not be supposed that we are going beyond our general

doctrine, and introducing another element, namely, Quantity, besides

the four elements, which, as we have so often alleged, can alone vary

the value of any Service. Quantity, in itself, is not an element

capable of varying the value of anything, but taken in connection with

durability, it is an element of what might, perhaps, be called with

propriety the _Inertia_ of Value, and tends to keep the

purchasing-power of gold and silver where it is. _Value and Steadiness

of Value are two distinct ideas._ The present value of an ounce of

gold is decided by four things alone, two Desires and two Efforts; but

other elements besides these may help determine that that ounce of

gold shall have ten years from now a purchasing-power approximately

the same as now. It will depend of course in the last analysis upon

the relation of the then Demand to the then Supply; yet the vast

quantity of the precious metals in existence, combined with their

durability, prevents those fluctuations in the Supply which are so

destructive to a steady value. It is not with them as with the fruits

and the cereals, whose value varies perpetually with the seasons, and

which are so perishable that they must be sold quick or never. Gold

and silver are almost indestructible, and the existing mass is not

liable to be lessened except by wear and accident, and in so far as

the annual production from the mines exceeds the yearly waste there is

a natural provision made for the natural increase of Demand to supply

the wants of the world for money and for the arts without much

disturbing the relation of the Demand and the Supply; and so Quantity

in connection with durability helps preserve to them a tolerably

steady value from generation to generation.

(d) On account of their Fluency. Gold and silver are in demand the

world over. Having great value in comparatively small bulk, they are

easily transported from Continent to Continent; and whenever from any

cause they become relatively in excess in any country, and so lose

there a portion of their previous purchasing-power, there is an

immediate motive in profits to export them to other countries, in

which their power in exchange is greater, and thus the equilibrium

tends to restore itself. The proposition is, The value of gold and

silver is kept pretty steady throughout the commercial world by the

facility with which they are carried from points where they are

relatively in excess to points where they are relatively in

deficiency. In any country or place where the precious metals are

temporarily in excess, the prices of general commodities as measured

in them will rise of necessity, because the unit of measure is smaller

than it was; and for the same general reason, the country temporarily

lacking in these will experience in consequence a fall of general

prices. There is, therefore, a private gain in carrying these metals

to those countries in which their power of purchase is the greatest

owing to the lack of them, because more commodities can be obtained

in exchange for them than at home; and private motives here coincide,

as indeed they generally do, with public welfare, since what the

traders do in carrying gold and silver abroad with an eye to their own

interest only, helps maintain at home and abroad the steady value of

these commodities.

This law of the distribution of the precious metals by Commerce, and

the equilibrium of their general value resulting therefrom, is as

natural and beautiful as the law which preserves the level of the

ocean, or that which balances the bodies of the planetary system. This

has come at length to be recognized by the nations, and the laws which

used to forbid by heavy penalties the exportation of gold and silver

are all swept away, and these metals are now free to go and do

actually go wherever they can obtain the most in exchange. It is

absurd to suppose that their owners would carry them out of a country

unless they were worth more abroad than at home; and, therefore, the

prejudice which still exists in this country (the relics of itself) is

a senseless prejudice. The gold is not given away, it is _sold_, and

sold for more than it will buy at home; otherwise nothing in the world

could start on its foreign travels. There is the same kind of gain in

this as in all other exchanges of commodities, with this great

incidental advantage in addition, that its general value is by this

means kept pretty uniform throughout the commercial world.

Unluckily for the darker and middle Ages, so far as they took their

cue and thought from the Romans, the latter, in the teeth of the sound

view of Aristotle, looked upon Money as something quite different from

other forms of salable things, looked upon it in short as an _end_ in

itself, as something to be gained and not readily to be parted with.

If this were the right view of Money, as it is not, then the policy to

spring from it might well be,--Get all the money possible into the

country, and let as little as possible out! Just this came to be the

policy of the Romans. In one of his Orations, Cicero says, "_The

Senate solemnly decreed both many times previously, and again when I

was consul, that gold and silver ought not to be exported._" The other

and the true opinion, that money is bought and sold like any other

valuable, and that its sole peculiar function is as a _means_ to

further sales, was indeed held and argued at Rome, as we learn

incidentally from a passage in the Institutes of Justinian; but the

false though plausible opinion, that money is _ultimate_, and not

_mediate_, is said in the same passage "to _have prevailed_"; and

accordingly this superficial view of money, and that it "_ought not to

be exported_," constitute what may be called the Bullion Theory, and

it is the first general theory of Sales ever promulgated. The Romans

brought it forth, and other nations took it from them. It could never

stand in the light of Reason, and still less amid the exigencies of

practical Commerce.

It is an illustration of the continuity of human thinking as well in

wrong as in right directions, that the second main theory of Sales,

which has long been styled the Mercantile Theory, is a prolongation

and expansion of the first. _That_ gave an undue weight to gold and

silver over other goods in trade, and forbade their export: _this_ did

the same thing too, but also tried to swell the exports of other goods

beyond the worth of current imports, _so as to get back a balance in

gold and silver_: both alike interfered with the international fluency

of the precious metals, to the constant detriment of all parties to

the restrictions. The common principles of both Theories may be thus

expressed: _Gold and silver are the things to get; they are worth

more than what they will buy; therefore let us get all of these in

that we can, and let as little of them out as we can; and let us work

all our trade so, that others shall have to give us a balance back in

gold and silver._ These false postulates and inferences wrought

centuries of woe in the world of commerce, because all the leading

nations became devotees simultaneously to this scheme of each shrewdly

plundering the rest. The germs of this Mercantile Theory appear first

in France, when Phillippe le Bel, in ordinances of 1303 and 1304, put

his hand in as king to mend the movement of trade, to forbid the

export of gold and silver, to fix the price of wheat and to forbid its

export, and to lessen imports by prohibitions of them. "_Considering

that our enemies might profit by our provisions, and that it is

important to leave them their merchandise, we have ordered that the

former should not be exported nor the latter imported._" The famous

Colbert, who laid down many financial maxims that are good, thought

nevertheless, that he could so manage the foreign trade of France that

she should get the better of her neighbors, and embodied his plan in

the tariff of 1664. We will let him state his plan in his own words:

"_To reduce export duties on provisions and manufactures of the

Kingdom; to diminish import duties on everything which is of use in

manufactures; and to repel the products of foreign manufactures by

raising the duties._" The principle of the Mercantile Theory was never

better or briefer expressed than by Ustariz, a Spaniard, in 1740: "_It

is necessary rigorously to employ all the means that can lead us to

sell to foreigners more of our productions than they will sell us of

theirs, as that is the whole secret and the sole advantage of trade._"

Too many nations knew the "whole secret" at the same time, and

accordingly the "sole advantage" to any became exceedingly small.

England was as deep in the sloughs and wars and losses of this false

system as any of the rest.