CHAPTER I

INTRODUCTORY

Treatises innumerable have been written about money. Famous and non-famous political economists have attempted a definition of money. These definitions have been divergent, and often irreconcilable. Political economists have found it no easier to arrive at a simple, understandable, explicit formula than literary critics have found it to define poetry. All of us have a vague idea of what money is, but it is so vague that it is well-nigh impossible to present it in a concise and precise phrase.

This amazes the man in the street, who believes that nothing is so simple, nothing so easily conceivable as money. To him, of course, money consists of so many pounds, shillings, and pence, and when that is said, all is said. What more is there to explain and define? He is wealthy or poor, comfortable or miserable, according to the quantity of pounds, shillings, and pence he possesses. He knows that he can satisfy his needs, his desires, his cravings if he has enough money with which to buy what he wants, but if he has insufficient his needs and longings will not be gratified.

He knows that when he goes into a shop he exchanges money for commodities. When he purchases a pair of boots he does not tender for them a watch, or loaves, or a couple of tender chickens that he has bred on his poultry farm. He hands over a few shillings, receives the boots neatly packed, thanks the shopman, says “Good-day,” and is quite unconscious that he really has exchanged for the boots commodities that he or some other members of the community have produced.

It would be waste of time and labour, in a treatise of this character, to devote several chapters to the evolution of money, or, rather, to the evolution of those articles that have served the usages of exchange. Those who desire to acquaint themselves with these historical facts must consult the many works devoted thereto. The world’s monetary systems, at the stage now reached by them--it does not follow that it is a final stage--are the outcome of experiments and improvements in national and international exchange. In primitive days direct barter was resorted to. Goods were exchanged directly for goods, commodities for commodities. The baker took his bread to the tailor when he was in need of a garment, and the maker of footwear took his handiwork to the baker or the butcher when he wanted food.

This worked well enough in small communities living in circumscribed areas, having no intercourse with communities living at inaccessible distances. But as the communities grew, as their boundaries expanded, as they came into closer touch with other communities, as distance became shortened by the discoveries of means of transport, as individual and collective mentality strengthened, these primitive communities had to face the increasing inconveniences of direct barter. Necessity stimulated ingenuity and invention until in the course of ages the inconveniences were lessened by the use of selected articles for exchange. These were selected partly because of their scarcity and partly because of their durability, for it was discovered that scarce things were prized more highly than things that were abundant.

That which was scarce, therefore, by being more highly prized became what we call more valuable. That is to say, more store was set by its possession. The possession of it excited admiration and envy and greed; admiration and envy are the bases of economic value to this day. They are not the bases of ethical value, but economic law and moral law are opposed in many directions.

Scarce things, therefore, were just as much prized by primitive people as they are prized by civilized people to-day. It was these scarce things, therefore, that could be exchanged for an abundance of things, because no one valued what could easily be got and what all could have. There was a time when iron was scarce. As iron, too, was most useful for a great variety of purposes and as its utility was constantly showing itself, its scarcity, added to its usefulness, made it increasingly prized and valued. A ring of iron for a crown was of greater worth once than are the diamond-studded crowns of present day monarchs, and iron was at one time scarcer than diamonds and rubies are now, and a man in possession of a little iron could exchange that possession for a great quantity of cattle with the man who had more cattle than he knew what to do with. Cattle, therefore, were what we call cheap and iron was dear, the primitive idea being, as it still is, that cheapness consists in much and dearness in little, irrespective of their values in preserving life.

Iron was dear because it was scarce, cattle were cheap because they were plentiful. But man cannot live by iron, though he can live on cattle. Judged, therefore, from the standpoint of life-preservation, cattle should be more precious than iron; but judged from the standpoint of envy and vanity, iron was, as gold now is, of greater value than cattle. The one preserves life, the other pride, and here we see some components of the foundation on which the economic fabric has been reared.

A savage with a little iron and no live stock was considered wealthier and more enviable than the man with no iron and a vast quantity of live stock. The man in possession of the iron knew that he could get as much live stock as he wanted by parting with all or only a portion of his iron, and when he exchanged a portion of his iron for cattle he actually parted with money. The iron and the cattle were money--the iron was the sovereign and the cattle the pence in those days.

Now, the iron being scarce and being highly valued by the community on whose land it was found, a greater value was conferred upon it in time by law. The king and his counsellors of those days enacted that a certain quantity of iron should discharge so much taxes or redeem so much debt, that the Government would accept it in payment of taxes and in liquidation of debt, thereby absolving the payer from all legal responsibilities and penalties. From being merely an instrument of custom iron was raised to the higher function of being a legal instrument. It was given a certain arbitrary value, the value being expressed in the amount of taxes it should represent and in the amount of debt it should legally discharge.

Great importance lies in the conception that the legal, apart from the custom value, was purely arbitrary.

Cattle would be accepted in payment of taxes and in discharge of debt also; but, being more plentiful, and therefore of less value, the Government decreed that so many cattle would be equivalent to so many pounds of iron. Those who had no iron, therefore, had to pay in cattle, just as in these times those who have no gold must pay in silver or bronze.

Although a diamond may be worth many sovereigns, it will not be accepted by the tax collector, nor by our creditors, because it has no legal value. That is to say, it is not a legal instrument.

We are beginning to have some glimmering now of what money is. Money performs two important functions. It is a medium of exchange and it is a standard of value.

Money was the instrument man invented, after mental travail, to lessen or remove the inconveniences of direct barter.

Money represents the possession of a claim on the products of the community. It is a present and a future claim upon a portion of the wealth of the general community. When the claim is exercised it performs its function of a medium of exchange.

The idea is this. We are all potential consumers and producers. We have read of the early Christian community, when all the members of that community brought their goods and possessions to the common store and divided equally. This is precisely how society lives to-day. We all bring our goods and possessions to the common store, or market, as it is called, and there they are divided. But they are not divided equally. This is the chief difference. They are divided unequally in accord with our notions of equitable distribution.

Our claims on the common wealth are supposed to be based justly upon our individual produce. The more we produce the more we claim, the less we produce the less we claim. This is the fundamental idea, or hypothesis; but, like many ideas or hypotheses, the practical working of it is far from just and perfect. But the fundamental idea will make clear the function money performs.

We are familiar with those schemes of relief in times of distress when tickets are given to the poor, representing a certain quantity of food. On presentation to the butcher the ticket is exchanged for a pound of meat, and on presentation to the baker it is exchanged for a quartern loaf. These tickets are money. They are a media of exchange and possess exchange value. They are claims on the butcher or baker. If the possessor chooses, he can exchange the ticket with another for a pint of ale, and the other can claim the meat or the bread. They can pass from hand to hand, become currency, as money is called, and the exchange can be effected immediately or deferred.

The meat and the bread are subsequently paid for out of another fund, and the butcher and baker hand over the tickets and are paid their respective portions out of this common fund.

Now, the Government of the land can proclaim, if it pleases, that these tickets can represent permanent claims on the community. Instead of being destroyed, they can be used over and over again for an indefinite period--be made what is called legal currency.

What the laws have done is to decree that gold, silver, copper, and paper shall represent our claims on a certain proportion of the nation’s wealth. When we take our products to market we exchange them for these claims. These claims we afterwards present to the butcher, baker, and tailor, and when we have got rid of them we have exhausted our claims on them. If we can get no further claims we become poor or destitute. The only means of getting fresh claims is to bring more wealth to market and exchange it for more claims, and according to the quantity and quality of that wealth, so are the claims we get greater or smaller. The greater our claims the richer we are, the smaller our claims the poorer we are. If we bring to market products that no one wants and people will not exchange part of their claims for our merchandise, then we know our labour has been in vain.

In order to live, we must obtain these legal claims on the general wealth, and if we cannot obtain them we starve or become parasites.

A distinction exists, and a most important distinction, between money and legal tender currency. Anything may be money. If I have no legal tender currency and only a gold watch and I am in great need of a dress suit and I offer the watch for the suit and the watch is taken, that watch is money. It is no one else’s concern if the tailor accepts the watch in exchange for his labour, his skill, and his cloth. He has liberty to exchange the dress suit, if he pleases, for some ancient ornament he desires to possess, instead of for legal coin or currency. But he knows that the ornament will satisfy only his desire, and will be no claim on any portion of the community’s wealth. The butcher will not accept it for meat. But it has performed the function of money nevertheless.

The law has decreed, however, that there shall be a species of money, or currency, that shall have permanent value as a medium of exchange. It has decreed that all must accept this in exchange for wealth and in discharge of all legal obligations. With this object in view it has chosen gold to be the legal claim, and has set up gold to be what is called a standard of value. Treatises have been written on standards and on values. Both are highly controversial subjects, but these controversies must be ignored here.

This standard, or unit of value, is called in Great Britain a sovereign. It was decreed that this coin should consist of an arbitrary quantity of gold, mixed with alloy, and that it should be stamped with certain designs. These designs alone make it legal money, or legal tender. If I had a coin, containing exactly as much gold as a sovereign, and worth exactly as much, but plain, with no design, it would not be a legal coin. It would not be accepted in discharge of debt, in payment of taxes, in exchange for wealth. I could, perhaps, sell it to the jeweller for something below its real value, because he could make use of the metal to advantage; but it would be useless to buy meat and bread with.

The law, therefore, has decreed that a coin composed of gold, of a certain weight, and with certain designs upon it shall be a legal unit of value, and that so much silver and so much bronze shall be equal in value to this unit. It has decreed that sovereigns shall be legal tender for liabilities to an illimitable amount, that silver shall be legal tender to the maximum equality of £2, and bronze to the maximum equality of one shilling. That is to say, a creditor, if he chooses, can demand gold in redemption of his debt beyond £2, but whether he will put the demand into execution or not depends upon his will or circumstances.

It is necessary, therefore, to lay emphasis upon this distinction between money and legal tender currency. Money is relative wealth, because it represents relative, temporary claims; but legal tender currency is absolute wealth because it represents absolute, permanent claims.

If Germany conquered this country and enacted that the sovereign should no longer be legal currency, and that the mark should be substituted for it, the sovereign would then become a commodity, worth only its value in gold. Sovereigns are commodities abroad, just as continental gold units are commodities here. Sovereigns have no legal value on the Continent. Francs, marks, and dollars have no legal value in this country. What, in each country, confers upon the commodity gold its legal function as money is legislative enactment. Legislative enactment can also make a comparatively worthless product like paper of much greater value than gold. The paper value of a note for £100 is trifling. But because the Government has decreed it shall be worth one hundred sovereigns, then the individual members of the community take it at its face value. What is its value in Germany, especially when we are at war with Germany?

This shows the great and arbitrary power the Government of a nation possesses.

It can make stones legal tender if it chooses. Or it can make diamonds legal tender. Many nations have made silver and not gold legal tender.

When individuals of a nation exchange commodities they exchange it as in national legal tender. There is, however, no international legal tender. When nations exchange commodities the payment is made in different instruments, such as bills of exchange. Whenever gold is exchanged it is exchanged solely as a monetary commodity, and not in its national legal character as money. The gold in the sovereign is valued according to its quantity, and not by its value as a legal instrument, token or claim. But it is rarely that gold passes from one country to another in payment for goods received. This payment is managed in a much easier and less expensive fashion.