Edward Kellogg
A New Monetary System

Chapter II.
Money — The medium of Distribution
Section I.
The Nature and Properties of Money.

Money is the national medium of exchange for property and products.  It must be instituted, and its value must be fixed by the laws of the nation, in order to make it a public tender in payment of debts.  No debt can be paid with property or with individual notes, except by consent of the creditor;  but when money is tendered, all creditors are compelled to receive it in full satisfaction of debts.  The aim of legislation in regulating the value of money is to insure to all individuals, in making exchanges of their property for money, the full value of their products or property.  Debts are postponements of the time of payment for the property or products received;  and loans of money, and all rents of property, are mere rents of the use of certain amounts of legal or actual value, which use is to be paid for at the expiration of a specified period.  Money is the legal tender, and must be offered and received in payment for all these debts.

Certain properties are by law given to some substance, which bears the name and performs the functions of money.  The term money, then, signifies a legal, public medium of exchange, which possesses all the qualifications necessary to effect a just exchange of property.  In the discussion of the nature of money, it will appear that its properties are, in truth, the creation of law, and entirely different from the properties of the things which it exchanges.

Money has four properties or powers, viz.:  power to represent value, power to measure value, power to accumulate value by interest, and power to exchange value.  These properties are co-essential to a medium of exchange :  it is impossible that anyone of them should exist in such a medium independently of the others.  The material of money is a legalized agent, employed to express these powers, and render them available in trade.  The powers of money, which alone render it useful, are created by legislation;  therefore, money can possess none but legal value.  As all legal value depends upon the actual value which it holds or represents, money must represent actual value — that is, the value of property or labor.

Section II.
The Power of Money To Represent Value.

Money must be a legal representative of property, for it is impossible to find any light and portable material possessing the requisite inherent value to equal and balance the value of the property and products to be exchanged.  The real value is in the property and products, and the money is only the legal medium by which this value is represented and by which exchanges of the property and products are made.

Every representative is distinct from the thing which it represents;  and its presence implies the absence of the thing represented.  A representative has power to act for, or in lieu of something else.  The power to represent is always independent of the natural or inherent powers of the representative;  it is superadded and delegated, and cannot alter the original capabilities and qualities of the agent.  Delegated authority gives the agent, the person or thing, power over other persons or things, which, with merely his natural capabilities, he cannot possess.  Acting for himself alone, his acts are all individual, and incapable of binding any but himself.  For instance, he cannot give a note, bond or deed, which will bind others, or the property of others, unless the power be expressly delegated to him.  He may receive authority to give a note or bond binding the property of the people for its payment.  This authority does not diminish or alter his capabilities as an individual;  it is superadded to his natural endowments.  An ambassador represents our nation at a foreign court.  If he be lost at sea, the nation loses but one individual, although he represents and acts for thirty millions.  But if the nation should be annihilated, and the ambassador should reach his destination in safety, he would cease to be a representative: he would have nothing to represent.  He would, however, possess all his powers as an individual — he would lose only his delegated authority as a representative.

A representative in Congress is chosen by the people, and is empowered to act for or in lieu of them.  Still it is not supposable that he possesses as much knowledge and skill as all his constituents.  They are farmers, mechanics, manufacturers, and merchants.  Of many of the arts with which they are familiar, the member of Congress is ignorant.  He is their representative for one specific purpose — i.e., to make laws to govern the people.  He has a moral perception of justice corresponding to their perceptions of justice, and this fits him to be their representative in making laws.  Money is made solely to facilitate the exchange of products.  To be capable of effecting this exchange, it must be endowed with a legal power to represent actual value;  for it possesses no inherent quality which makes it equivalent to products or labor more than the representative in Congress possesses all the knowledge and abilities of his constituents.  It is held for the time being in lieu of property;  we cannot use it as property, and if we wish to use actual property we must obtain it by giving the legal representative, money, in exchange for it.  A representative in Congress has the sole authority to act there;  and the people whom he represents can neither control him, nor be heard in lieu of him.  They have no authority nor voice in making the laws except through their representative;  but the laws which he helps to enact have a binding force on his constituents and others.  So of money;  when it is made a representative of value it controls and determines the value of labor and property, while these have no power to control and regulate the value of the money.  The money is the only legal tender for debts;  and all property and labor are as powerless to discharge an obligation as the constituents of a representative are to act in Congress after they have delegated their power to their member.  The representative of value should no more have power to accumulate property in the hands of a few than the representative of the people should be allowed to legislate for the benefit of a few of his constituents.  Both are mere representatives, endowed with powers for specific purposes;  the former to exchange products, the latter to enact laws.  The producing classes elect and support the members of Congress, who are bound to make laws for the equal benefit of the people.  The people also furnish the material of money and the property which it represents;  and the representative of value should be such as to conduce in the highest degree to their welfare.

The following is another example of delegated or representative power :  A man gives a note for a thousand dollars.  He thus delegates to the paper on which the note is drawn a power that increases its legal value millions of times.  Before the drawing of the note, the paper possessed a small amount of actual value, but was;  not a legal representative of other property;  for, as paper only, its worth depended upon its inherent qualities.  But when the note is drawn, the paper becomes a representative, and has, according to law, a delegated control of a thousand dollars' worth of the property of the drawer.  The drawing of the note does not add a fraction to the actual worth of the paper;  its value in holding the property is legal, and superadded to its inherent qualities;  the same value might be superadded by law to a plate of steel, or of any metal.  The note and the property are distinct existences;  but the legal value of the note depends on the actual value of the property.  The paper material of a note good for a thousand dollars, is not as valuable as an ounce of flour;  but it has a legal power which makes it capable of being exchanged for two hundred barrels of flour, worth five dollars each.  A trifling labor will provide the representative note, but a great amount of labor is required to produce such a quantity of flour, or actual wealth.  All individual notes are, however, payable not in flour, nor in actual products or property, but in money, the legal representative of all commodities and property.

According to law, the owner of an estate represents the value of the estate in his own person;  but by a simple power of attorney, he can give to another the entire control of his property during his life-time.  The receiver of the power may not be worth a dollar, but the power of attorney may make him the representative and controller of millions of dollars' worth of property.  The paper that secures to him the control of the property has no greater inherent value after the writing of the instrument, than it had before;  it is merely made to represent the property and control its use.  The actual value which the paper represents, exists in the property, and, without the property, the paper would be worthless.  The power of attorney is confined to an individual;  but if a man, instead of making the power to a single person, should make it to bearer, whoever held the paper would have power over the property controlled by it.  The negotiable power of money is inseparable from it, otherwise it would not be money.  The holder of money has power over a certain amount of property for sale, and can appropriate it to himself.  Money has a legal power or value as much superior to the natural value of its material, as a paper which secures authority over property has a value superior to blank paper.

Money is, then, a legal existence, being constituted a national representative of property;  consequently it is a public lien on all property for sale in the nation, a public medium for the exchange of products, and a tender in payment of debts.  If money be made a representative of the earth and its productions, it cannot fail to be permanently valuable, for the earth and its products are necessary to the existence of man;  and anything which legally represents them, and can be exchanged for them, must be valuable to its holders.  It is a popular error that the value of money depends upon the material of which it is made.  As this misconception of the nature of money is of long standing, we shall endeavor to point out its inconsistency, in connection with each property of money.  The value of money perpetually depends upon its power to represent value, and not upon its material, because money never reaches a point at which it can be used as an article of actual value.  Suppose twenty-six individuals owe $100 each, payable on the same day: A. owes B., B. owes C., and so on through the alphabet to Z.  In the morning, A. borrows from a bank a banknote for $100 and pays it to B., B. pays it to C., C. to D., an so on, until it passes down to Z., who owes and pays it to the bank from which A. borrowed it.  The same bank-bill pays twenty-six debts, and in the evening is in the ownership, and possession of the same bank as in the morning.  Suppose that, instead of money, each of the twenty-six persons owes in the same order a loaf of bread, and each must have the loaf to use on the specified day or suffer from hunger.  In the morning A. goes to a baker, borrows a loaf and pays it to B., B. pays it to C., C. to D., and so on through the alphabet to Z., who pays it over to the baker.  The money in passing through this routine answers every man's purpose, and in meeting the contract fulfils the function for which money is designed, but the bread does not fulfil the purpose for which bread is designed, nor can a single loaf short of twenty-six answer the purpose.  But one banknote pays the twenty-six debts, and is ready to fulfil as many contracts more the next day, whereas twenty-six new loaves would be required to meet an equal number of contracts.  It may be objected that the comparison is not a fair one, because bread is consumed by use and money is not: take then any other article valuable for its material and not consumed in the use.  Twenty-six individuals have land to plough on the same day;  can they borrow one plough and make it answer the purpose of twenty-six ?

The value of lands and of goods, wares and merchandise, does not depend upon any act of legislation, upon any power to represent and exchange, but upon their utility for food, clothing, etc.  If the gold or silver material of money be used for any other purposes than to represent and exchange property, if it be used for spoons, or ornaments, it at once ceases to be money: it is no longer a legal representative of value, but finds its level as a commodity.  But the inherent properties of all articles of actual value, are their only valuable properties.  However various the employment of articles of actual value, their properties do not change, or become useless.  For example, cloth is useful to make a garment, and when made, is a cloth garment.  The nature of the cloth does not change;  it is only applied to a specific purpose, and the cloth retains its properties of durability, etc.  Metal buttons are used upon the garment, and continue to be metal buttons.  But silver money converted into a spoon, makes a silver spoon, and not a money spoon.  The silver is no longer a legal representative of actual value;  it is no longer money, for it has ceased to have the properties of money, which are creations of law.  Neither a spoon nor bullion can legally represent, measure, accumulate nor exchange property;  and the mere metal is, consequently, not a medium of exchange, nor a tender in payment of debts.  The sole value of gold and silver coins, when not used for a currency, consists in the worth of their materials for spoons, ornaments, etc., which are a very small part of our actual wealth, and not indispensable to human existence.  The metals cease to be money, as the power of a representative ceases when the term for which he was elected expires.  He may be re-elected and receive his former power;  and the gold may be recoined by the government, and thus be endowed with its former power as money.  So, if the paper of a bond or note be ground to dust its value ceases;  but it may be remade into paper, and by the requisite writings receive its former value.

The laws of nations have established money as the standard of value.  These laws are immaterial;  they are principles, and not material substances.  The power of money is also immaterial :  it is its legal authority, and not its material substance that establishes its value and power.  The laws have professedly established the value of money in its material substance, but the groundwork being false, they have failed practically to establish money upon this basis;  yet they have so far succeeded as grossly to deceive the public.  That the worth of money to exchange property does not reside in its material, but in its legal power to represent value, will appear in the following illustrations :  A. hires B. and C. to work for him at ten dollars per week each.  At the end of the week he pays B. a ten-dollar gold piece, and C. a ten-dollar banknote;  taking in both cases a receipt in full for the week's work.  B. is now the actual owner of the gold, and C. the actual owner of the paper in the banknote.  C. can buy in the market just as many of the necessaries of life with his paper money as B. can buy with his piece of gold.  B. gave no more labor for the gold money than C. gave for the paper money, and can buy no more products with the gold than C. can buy with the paper.  If there be any intrinsic value in gold money which does not exist in paper money, B., when he parts with his piece of gold, loses all the difference between the intrinsic value of the gold money and the intrinsic value of the paper money.  But all the difference in the intrinsic value of the gold and paper disappears when both are used as money;  hence it is evident that it is the immaterial power, that it is its legal authority over other things, and not the intrinsic value of its substance, that establishes the market value of the money.  B. did not work the week because he needed the gold, neither did C. work the week because he needed the paper.  They both labored for the same object, which was to procure the necessaries of life;  and they both knew that either kind of money was legally competent to pay for these things.  A yard of cloth measured with a gold yard-stick is neither longer nor shorter than if measured with a wooden one;  and property purchased with gold or silver money is neither more not less valuable than if bought with paper money.  A person intends to purchase a farm and settle in Ohio.  He has a thousand dollars in silver, but, as it is inconvenient to transport the specie, he exchanges it at a bank in New York for a thousand one-dollar bank bills.  The bills readily purchase the farm.  The individual who receives them in payment lends them on interest, and the borrower purchases wheat with them.  Thus the bills circulate as money, and can be loaned for as good an income, or will purchase as much grain, as a thousand dollars in silver.  They fulfil every purpose for which money is designed as well as the silver would.  If the notes should remain permanently in Ohio, and the people should believe the bank secure, the notes would be a much better currency than coins, for they would make purchases as well, they could as well be loaned for an income, and could be much more easily transported.  Why could not a thousand axes be deposited in Wall Street, and a thousand pieces of paper be taken for them, on each corner of which was engraved "one axe," and in the body a written promise to pay one axe on demand, and these paper axes be taken to Ohio, and made to answer every purpose for which axes are designed, in clearing forests, etc., in lieu of the steel axes ?  There is as much resemblance between a paper axe and a steel axe as there is between a paper dollar and a silver dollar.  If a paper dollar, that represents a silver dollar, is as good for all the purposes for which money is designed as a silver dollar, why is not a paper axe that represents a steel axe, as good for all the purposes for which axes are designed as the steel axe?  The reason that the paper dollar will answer as well as the silver dollar is, that the silver and the paper dollar are both representatives, the silver dollar equally with the paper dollar. (See Chap. III, The Banking System.)  If the value of money be in the worth and weight of its material, it cannot be representative;  and if its value be not representative.  It would be as impossible to make paper money fulfil;  as it now does, the functions of coins as to make a paper promise to pay a loaf of bread on demand as nutritious as the bread;  or to make paper representatives of ploughs promising to pay real ploughs on demand capable of tilling the ground.  If a city bank have $100 in coins and issue $600 in banknotes;  the amount of money is as much increased as if $600 in specie had been issued.  Each dollar of the banknotes will pay for as much labor and for as many of the necessaries of life as any one dollar in specie;  and so long as these banknotes continue to circulate and to be on a par with specie, they continue to hold the same power and value in the market that are held by gold and silver money.  Hence, if the value of money is inherent, this must prove that it inheres in banknotes as well as in coins.  The fact that it takes many thousand times more labor to mine the gold and silver and coin them into money, than it does to make the paper and engrave the banknotes, makes no difference in the market value of the money, because the value of the money depends on its immaterial power — that is, upon its legal authority, and not at all upon its material substance.  The law can and does designate the substance out of which money shall be made, but human laws do not in the least alter the intrinsic value of any substance.  We might as well undertake by legislation to make saw-dust as nutritious as bread, as to undertake to make paper money on a par with specie if the value of the specie were dependent on its material substance.  It takes as much labor and material to make a one dollar bank-bill as it does to make a one thousand dollar bill;  yet the latter is worth in the market precisely one thousand times more than the former.

The reason that the value of bullion is equal to that of coins is, that coins are made at the expense of the nation.  The government coins all the gold and silver offered at the mint free of charge.  It will give, in exchange for them, an equal weight in coins.  If the government would take wool, and make cloth at the public expense, and return to those who furnish wool an equal weight in cloth, the cloth and wool would command the same price, because the expense of manufacturing the cloth would be borne by the government.  If a charge were made for manufacturing, the wool would be worth less than the cloth;  and if a premium were charged for coinage, the value of bullion would depreciate below that of coins.  It is clear that gold and silver have no special inherent value which makes them naturally money;  for they are not money until made so by conversion into coin.

Section III.
The Power of Money to Measure Value.

The power to measure value is another property of money.  Measures are definite quantities of length, weight, bulk, and value, by which the amount of length, weight, bulk, and value in any substance is defined and ascertained.

Length, weight, bulk, and value, must necessarily be indefinite, unless some limit be fixed upon for a standard to which all other lengths, weights, quantities, and values may be referred, and by which they may be computed.  Length may be the circumference of the earth, or the unknown distance to a star, or it may be the one-thousandth part of an inch;  therefore, to convey any definite idea of length, reference must be made to a fixed standard.  Weight, quantity, and value, are equally indefinite;  hence the necessity for some limit or standard, to which they may be referred, and by which their amount may be ascertained.

The length, weight, quantity, and value of all articles, in business transactions, are settled by certain measures fixed upon by the government.  The length of the yard-stick measures and determines a before undefined length of cloth;  the size of the bushel measures and defines the before undefined quantity of grain;  and so of the pound weight, it defines the quantity of cotton or other substances.  The cloth does not define the length of the yard-stick, neither does the grain determine the size of the bushel, nor the cotton the pound weight.  The value of the dollar measures and determines a before undefined value of land, labor, or products;  the value of land, labor, and products, does not measure and determine the already defined value of the dollar.  When the yard-stick measures cloth, it does not determine its own length;  and when money exchanges property, it does not determine its own value.  Both the length of the yard-stick, and the value of the money, were previously determined by the laws which instituted them, and gave them power to measure length and value, which are their sole objects and uses as measures.

The pound weight, or the standard of weights, determines the amount of the weight of all commodities;  and the dollar, or money, the standard of value, by its own fixed legal value, determines the amount of the value of all other things.  The weight of the pound, the length of the yard, and the value of the dollar, are presumed to be invariably fixed by national laws, and, therefore, every variation from their legal standard is a fraud upon the public.  If the yard be variable, the measure of length will commit frauds when it is used;  and if its value be fluctuating, the measure of value will commit frauds whenever it is used to measure the value of labor or property.  If measures be strictly just and uniform, they will equitably determine quantities and values, whether of land, labor, or commodities.

It appears that the government considers the dollar of more importance than any other measure, for it reserves the right to coin it, and makes it a criminal offence for individuals to coin or issue money, even if it be equal to the government standard in purity and weight.  Individuals are also prohibited from making and issuing paper money as a substitute for gold and silver money, unless especially authorized by law;  and when this privilege is granted, the amount that may circulate and the security that shall be given to secure the public against loss, are also prescribed by law.  But any individual may make and use any other measures, or may make and sell them in market, the government having merely a supervision over them as to weight, size and length.[1]

Money measures its own amount or value of actual property as often as it passes from one individual to another, as the yard-stick measures its own length as often as it passes over the cloth;  consequently a given sum of money measures in a given time more or less property, according to the frequency of its transfer.  In one morning, a dollar, passing through several hands, maybe laid out for food, buy various articles of clothing, be loaned out with other dollars on bond and mortgage, and then purchase a dozen articles more.  Every time it passes, it determines the market value of the thing that it buys.

If there were no distinction between measures of value and articles of value, the same principle would apply to both;  one yard of cloth, rapidly measured, would answer the purpose of two, slowly measured;  a pound of food, rapidly weighed, would answer the purpose of two, slowly weighed.  The value of money cannot consist in the amount or kind of the metal in which its properties are embodied;  for, in its rapid circulation, it can be used neither as a utensil nor as an ornament, and is only useful to exchange property.  Eagles and dollars are seldom used for ornamental purposes :  and when they are so employed they cease to exchange products.

The value of money balances the value of the commodity sold, as the weight of the pound balances the weight of the thing weighed;  or the yard, the length of the cloth measured.  Measures of quantity remain stationary, their only function being to determine the exact quantities of the commodities transferred from the seller to the purchaser.  But the measure of value passes into the possession of the seller, who holds it as a representative of value in lieu of his commodity. And it is on this account that the measure of value is frequently confounded with articles of value.

Money, like all other measures, is divisible.  The yard is divided into feet and inches, that it may determine any required length.  The pound weight is divided into half-pounds and ounces;  the bushel into the peck, quart, etc., that they may accurately determine the various weights and quantities of various substances.  Money is divided into pounds, shillings, and pence, dollars, half-dollars, dimes, etc., that it may determine the precise amount of the value of all commodities.

The government reserves the right to fix the length of the yard, the weight of the pound, the size of the bushel, and the value of the dollar, that they may be fitted for public use.  Money is the public measure of value;  and the government is bound to make it just and uniform, that it may correctly determine the value of all commodities.

Section IV.
The Power of Money of Money to Accumulate Value by Interest.

Money, the representative and measure of value, has also the power to accumulate value by interest.  This accumulative power is essential to the existence of money, for no one will exchange productive property for money that does not represent production.  The law making gold and silver coins a public tender, imparts to dead masses of metal as it were, life and energy.  It gives them certain powers which, without legal enactment, they could not possess, and which enable their owner to obtain for their use what other men must earn by their labor.  One piece of gold receives a legal capability to earn for its owner, in a given time, another piece of gold as large as itself.  Or, in other words, the legal power of money to accumulate by interest compels the borrower, in a given period, determined by the rate of interest, to mine and coin, or procure, by the sale of his labor or products, another lump of gold as large as the first, and give it, together with the first, to the lender.  If the borrower of the gold pay interest half yearly at the rate of seven percent per annum, he must double the lump in about ten years.  If he pay interest half yearly at the rate of six percent per annum, he must double the lump in less than twelve years;  at three percent, in less than twenty-four years;  and at one percent, in about seventy years.

In popular phrase, money is said to be a producer of value;  but this expression conveys a false idea, for money possesses no power to produce.  The earth produces by actual increase--by the growth of additional quantities of the seed sown.  But money possesses no natural capability to produce its like.  It can only accumulate things already produced.  When a loan of a hundred dollars is repaid with interest, the six or seven dollars given as interest have not grown upon the original one hundred.  Nothing grows upon the mortgage that bears interest.  The interest on the money, or on the mortgage, must be paid in money received in exchange for property, products, or labor.

The worth and amount of the interest on the dollar constitute and determine the value of the dollar, and make it equal to a certain amount of actual value or property, as much as the amount and kind of labor that a man can perform, determine his value as a workman;  or as the quality and quantity of the fruit of a tree determine the value of the tree.  In the same manner, and for the same reason, if the interest on the dollar be good, the dollar will also be good.  The value of the workman and of the tree is natural to them, and consists in their power to produce;  the value of money is artificial, and consists in its arbitrary power to represent actual value and to accumulate by interest.

Demand and supply are sometimes said to give value to money;  but it would be as reasonable to assert that demand and supply fix the length of the yard, the weight of the pound, or the size of the bushel, as that demand and supply regulate the value of money.  One is a legal instrument to determine value, its own value being fixed by law;  the others are legal instruments to determine length, weight, and quantity, their own length, weight, and size being fixed by law.

Money is valuable in proportion to its power to accumulate value by interest.  A dollar which can be loaned for twelve percent interest, is worth twice as much as one that can be loaned for but six percent, just as a railroad stock which will annually bring in twelve percent, is worth twice as much as one that annually brings in six percent.  The value of state, bank, railroad, or any other stock, is estimated by the dividends it will pay during the time it has to run.  Any increase;  or diminution of the power of money to accumulate by interest, increases or diminishes proportionably its value, and consequently its power over property.

Money becomes worthless whenever it ceases to be capable of accumulating an income which can be exchanged for articles of actual value.  Take the following example.  Suppose, during the Revolutionary war, A. had lent to B. a thousand dollars in gold or silver coin, at six percent interest, for a term of fifty years, and had taken as security a mortgage on B.'s farm, which was worth $10,000.  A. had agreed to receive the six percent interest from B. in Continental money.  This currency soon after proved to be worthless;  and the interest proving worthless, the principal would have been worthless to A. during the fifty years for which he lent it, although the loan was made in gold and silver coin, and, at the expiration of that period, the principal would have been paid him in coin.

Now reverse the circumstances, and suppose A. had lent to B. a thousand dollars in Continental money on the same farm for fifty years, and had made the interest payable in gold and silver coin.  Although the principal was lent in Continental money, which soon after became worthless, it would have continued as valuable to A. for fifty years, as the interest in coin which he received upon it.  The interest continuing valuable, the mortgage would have been a binding lien upon B.'s farm for the fifty years, and would have taken a part of the yearly produce of the farm for that period.  At the expiration of the fifty years, the principal would have become worthless, for it could not have brought in a further income.  But in the former case, in which specie was lent and the interest made payable in Continental money, the interest being worthless, the contract would not have been an encumbrance upon B.'s farm;  for no part of its yearly products would have been required to pay the interest.  At the expiration of fifty years, the principal could have been demanded in specie.

The value of money as much depends upon its legal power to be loaned for an income, as the value of a farm depends upon its natural power to produce.  If the Continental money, or the assignats of France, had been made representatives of property, and capable of being always loaned for a good and uniform income, they would have been as permanently valuable as a mortgage in perpetuity on a farm, which could yearly collect from the farmer a certain quantity of products, as interest, or income.  The value of a horse depends upon his ability to perform useful labor for his possessor;  and the value of money depends upon its capability to earn for its owner by being loaned on interest.  Take twenty mortgages for ten years on twenty different farms.  Suppose each of these farms to rent for sixty dollars a year, just the interest on each of the mortgages.  It would take the whole produce of each farm to pay the interest on each mortgage.  The twenty mortgages would take the rent or produce of the twenty farms for ten years.  In one month, one thousand dollars could be easily loaned so as to take the entire income of twenty farms for ten years.  Consequently, each time the money was lent it would accumulate an income which would be as valuable to its owner as a farm of equal value leased for the same period;  for the income on the money would yearly purchase the whole yearly produce of the farm.

The difference between money and the farms is, that the former is a legal representative and measure of value, and the latter are of actual value.  The money is as capable of representing and measuring its own amount of value a hundred times in a year, and creating a hundred incomes, as the pound weight is of determining its own amount of weight a hundred times.  The quantity of cloth measured, and the weight of things weighed, cannot be increased by the number of times that the measure is applied to them.  But money being a representative of value, and being endowed by law with the power to accumulate by interest, makes an income whenever it is transferred from, one to another as a loan.

Anything that exists in perpetuity, is valuable in exact proportion to the income it will yearly bring to its owner.  The market value of a house, store, or farm, rises or falls with the rise or fall of its yearly rent;  and the value of the dollar rises or falls with the rise or fall of its rent or interest.  If we admit both the property and the money to be merchandise, this principle cannot be true in one case without being equally true in the other;  therefore, whether we assume money to be of actual, or of legal value, to keep its value uniform, the rate of interest must be kept uniform.  Doubling the capability of the dollar to accumulate, doubles the value of the dollar.  Its nominal value may, and does remain the same — that is, it retains the name of dollar, although it possesses twice its ordinary value, or power over property and labor.

The same principle applies to all measures.  The length of the yard-stick being doubled, although it might still retain its name, it would measure twice as much cloth as with its present limits.  And money, while its denominations remain the same, measures more or less property, according to the rate of interest.  We may imagine a measure fluctuating, expanding and contracting between certain points;  as a yard-stick, made of some elastic material, susceptible of being stretched to twice or thrice its ordinary limits, and still called a yard-stick, and used as such.  But no one would deem himself acquainted with the actual length of anything measured by this yard-stick, although, if it were the legalized one, it could, and must be used in business.[2]

Measures of quantity are instituted, and their length, bulk, and weight are fixed by law, and not by individuals.  The measure of value is instituted and made by law;  and, consequently, it is fraudulently used when the rate of interest upon it, which determines its value, is altered by individuals.  The fundamental proposition of Jeremy Bentham, in his "Defence of Usury," is as follows :

"No man of ripe years, and of sound judgement, acting freely and with his eyes open, ought to be hindered, with a view to his advantage, from making such bargain, in the way of obtaining money, as he thinks fit;  nor (what is a necessary consequence) anybody hindered from supplying him, upon any terms he thinks proper to accede to."

According to Mr. Bentham's theory, when money is loaned, the rate of interest to be paid must be a matter of agreement between borrower and lender.  This makes the rate of interest belong to the system of free-trade, whereas it no more belongs to this system than the length of the yard-stick or the weight of the pound.  By increasing the rate of interest, both the principal of the money and the interest upon it have an increased power over property, just as the pound increased in weight would call for an additional quantity of products to balance it.  The right to fix the value of money is as much reserved by the government as the right to fix the length of the yard or the weight of the pound;  and the regulation of its value is a thousand times more important to the people.[3]  The value of money is no more fixed or regulated by the laws ordering each piece of money to be coined of a certain weight and kind of metal than the length of the yard would be fixed by ordering it to be made of a certain weight and kind of wood, without regard to its length.

The value of money depends upon its power to accumulate value for its owner, by interest, and not upon the worth of its material;  as the value of a paper instrument, which secures a ground-rent, depends upon the productiveness of the land on which it is secured, and not upon the inherent qualities of the paper.  If the land were permanently unproductive, the lien could command no products, and would be worthless, except so far as the paper on which it was drawn possessed inherent value.  Suppose the lien to be engraven on a silver plate, instead of on paper, and to be made in perpetuity for $10,000, at six percent interest per annum.  Let the annual products of the land be sufficient to pay for the labor expended upon it, and to pay the ground-rent, and the silver on which the ground-rent was engraven would be worth ten thousand dollars, whether the plate of silver on which it was drawn were three feet square, and weighed three hundred pounds, or whether it were three inches square, and weighed but three ounces.  If the ground-rent on each plate were in perpetuity, and it were necessary to preserve each in its proper form, to keep the title good, although so great a difference existed in the weight, there would be no difference in the value of the two plates, for both would secure the same annual amount of interest.  If, however, the ground-rent should fail because of some defect in the title, of course the larger plate of metal would be worth more than the smaller, for it would make more useful and ornamental articles.  A ground-rent made in perpetuity for $10,000, secured on good property by paper instruments, would be as valuable to any owner as the larger silver plate.  For this and for similar purposes, the paper is as much superior to the silver as, in manufacturing, the power-loom is superior to hand-weaving.  The value of these liens on specific pieces of land, does not more depend on the productiveness of the land than the value of money depends upon its power to accumulate an income from the labor or property of borrowers.  The value of the papers which secure the National Debt of England would cease if the government should pass a law to pay no more interest upon the debt.  A mere legislative enactment could annul the value of the papers.  Laws, then, give them their worth, and their worth consists in their power to collect a yearly income, which may be exchanged for the products of labor.

Money could not answer the purposes of a medium of exchange unless it were necessary to part with it to make it valuable.  For this reason it is made to accumulate no interest in the possession of its owner;  for if it would accumulate interest in his hands, it would be legally equivalent to a bond and mortgage bearing interest, or to productive property, and the owner would not need to part with it to make it productive.

Section V.
The Power of Money to Exchange Value.

Another power of money is to exchange property.  When it is made the public representative of value, and the interest is fixed at a just rate, it is fitted to perform the duty of money, which is the equitable exchange of property.  All goods, wares, and merchandise, although they may be exchanged for money a number of times, soon find a place where they are consumed;  but money never reaches a point where it can be used except as a tender in exchange for property.  Making a silver dollar an equivalent or tender in payment for a debt contracted by the purchase of a bushel of wheat, does not make the dollar possess the nutritious qualities of the wheat, more than giving a note upon the purchase of a hundred bushels of corn makes the note of as great actual value as the corn.  The value of the note depends upon its power to exchange itself for the property of the drawer, and not on the worth of the paper upon which the note is drawn.  But the value of the corn depends upon its nutritious qualities, and not upon any power to exchange itself for the property of the person who raised or sold it.  The note must be exchanged for property before it can be useful to its owner;  money must also be exchanged for property :  to become useful.

This, then, is the distinction between articles of actual value and the medium of exchange.  The former are designed to be actually used or consumed;  the latter is designed to be continually exchanged for articles for actual use and consumption.  Hence money is not merchandise, for if its material be used as a commodity — if coins be converted into watch-cases and ornaments, the owner must keep them to make them useful.

The object of the institution of money is to, facilitate the exchange of commodities;  and this it could never do unless it were possessed of as much legal value as the thing for which it is to be exchanged possesses actual value.  If a farmer has five hundred bushels of wheat, with which he wishes to buy sugar, coffee, tea, molasses, clothing and so forth for his family, he will not sell the wheat for five hundred dollars, unless the money will be a legal equivalent for all the articles for which he wishes to exchange his wheat.  He does not want the money to keep;  he wants it to exchange for other articles that he needs to use or consume, and he sells his wheat for money because the money is a legal equivalent for every species of property.  It would be very difficult for him to divide up the wheat and barter it for various articles in different places;  and the wheat is not a tender.  But he can divide up his money in amounts to suit all his purchases, and the money is a legal tender in payment.  A man may carry a piece of paper money in his pocket that is a legal equivalent for a valuable farm in any part of the country, when if he had the same amount of actual value, it might be impossible for him to move it;  but he can sell it for money, and the money he can carry in his pocket and buy with it where he pleases.

Some writers, instead of considering money as a medium of exchange, call it capital seeking investment.  If money be capital, it is already invested;  because the capital would consist in the inherent value of the material of the money, and not in the thing the money seeks to obtain.  But, when money has found one investment, it is as much a seeker for a second and a third investment, as if it had not been invested at all.  It is always seeking investment, without being invested.[4]  It is no more real capital than a very poor horse, of which the appearance is such that he will do very well to exchange off.  But if he should finally fall into the hands of a person who had not the good fortune to exchange him again for something else, the owner would have to depend upon his few useful qualities.  And if a currency were formed in the various nations independently of gold and silver, and coins should cease to be a tender in payment of debts, the value of coins would depend upon their inherent qualities, as metals, as much as the value of the horse when he could be no longer exchanged for more than his actual worth, would depend upon the little labor that he could perform, or upon his hide and bones.  The price of the gold and of the horse would then depend upon their actual usefulness, and not upon any capabilities for exchange.

Money is, then, a combination of legal powers, expressed upon metal, paper, or some other substance;  its value is the standard or determiner of the value of all other things, and it serves as a public medium of exchange for land, labor, and all commodities.

Section VI.
The Material of Money, and the Distinctions Between Money and
the Material of Which it is Made.

The material of money — gold, silver, paper, or any other substance — is a legalized agent, made to express the four properties, or powers of money, and render them available in business transactions.

Common usage has applied the term measure to the material, by means of which, length, weight, etc., are ascertained as for instance, the yard, pound, and bushel, instantly suggest the stick, iron, and wood, the means employed, rather than the abstract length, weight, and size, which are, in reality, the things signified by the terms.  It matters not whether the yard-stick and pound weight be of wood, iron, or gold — length and weight are the only properties necessary to be expressed by them, and possessing the standard limits, their material is a matter of indifference.  Of course, some material is indispensable;  but the only thing that makes one substance preferable to another, is its superior convenience.  So of money;  it is a matter of indifference by what material the powers or properties of money are expressed, for the material is merely a substance fixed upon by law.

The natural powers of any material do not make it money.  Its powers and agency as money are delegated to it by law, in addition to its natural capabilities.  When gold is used, the powers conferred upon it make It an equivalent for every species of property.  If gold had not been selected for the material of money, and a legal power given to it to exchange property, and to accumulate interest for its use, a man would have as little occasion for more gold than he needs for utensils and or ornaments, as for more clothes than he can wear, or more tools than he can use.  It would have been subjected to the same laws of trade as other merchandise, and must have waited a demand for consumption before it could have been sold.  It is clear that gold possesses no peculiar or inherent excellence to endow it with power to determine the value and control the use of all other things.  But when it is made the agent of these legal powers, it becomes necessary to acquire the gold in order to discharge debts;  and the quantity of the metal being limited, its owners are enabled to extort from the necessitous a very high price for its use.  If gold were not used as the material of the currency, its abundance would cause no inflation of business, nor would its scarcity produce distress, because, compared with other metals, its use is very limited.

The following statement will show the different effects upon our own people of the use of the precious metals as utensils, and their use as the material of money.  All will probably admit that there were, in 1846, twelve thousand families in the city of New York, owning, on an average, $800 worth of gold and silver ware, such as tea, coffee, and dinner services, vases, ornaments, etc.  Including jewellery, the amount of the metals probably far exceeded the sum named.  But calculating the twelve thousand families to have owned $800 worth each, they owned, in the aggregate, $9,600,000;  while, according to the Bank Reports, the specie in all the banks in the State of New York on the 1st day of November, 1846, amounted to but $8,048,348.  Suppose the twelve thousand families owning these silver and gold utensils and ornaments, had in one week collected them together, and shipped them to England.  The shipping of these wares would have had no more effect upon the monetary affairs of the State or nation, nor upon business, than the shipping of the same amount in cotton and tobacco.  But had the people drained the $8,048,348 of coins from the banks, and shipped them abroad, the banks throughout the State :  and throughout the United States, would have been compelled to suspend specie payments, and hundreds of thousands of our people would have been bankrupted or thrown out of employment.  Yet, by shipping the gold and silver wares, more than one million and a half more or the precious metals would a have left the country, than by shipping the coins.  The shipment of the smaller amount would have shaken the country to its centre, while the shipment of the larger amount, could not have unfavorably affected business.  And yet our gold and silver utensils and ornaments are more in use than our coins;  for the coins are mostly in kegs and boxes in the vaults of banks, and if they are moved at all, it is usually from one bank vault to another, without even emptying them from the kegs.  If money is merchandise, why would not the shipment of our gold and silver utensils affect the business of the nation, as much as the shipment of our coins ?  The same twelve thousand families were doubtless the owners of a much larger amount of the capital stocks of the banks than the $9,600,000;  and could at any time have sold stock enough to draw an the specie from the banks, and thus have caused a suspension of payments, and distressed producers, even without shipping the specie.

If the value of money inhere in the precious metals, so that a certain weight naturally possesses a certain amount of power to exchange property, and still is itself a commodity, the value of which is fixed by law, other commodities made of the same naturally precious metals, watch-cases, spoons, etc., should likewise be subject to the scrutiny and restriction of government, that the public may not be imposed upon in the receipt of them by any mixture of alloy.  If money be a commodity, why do governments pretend to fix a value upon coins, and not upon any other commodity, although it be made of gold or silver ?  If a definite value be assigned to one commodity by legal enactment, a definite value should also be legally assigned to every other commodity, that each may sustain a just relation according to the amount of labor necessary to manufacture or produce it.  If money be a commodity, goods sold might as well be made payable in other commodities, sugar, beef, etc., as in money.  Why not as well sell money on time payable in goods, as goods on time payable in money ?  If money be a commodity, why should the government force the public to convert every other commodity into this one to pay debts ?  If the sale and purchase of all other commodities will cause debts to exist, why should one commodity only be competent to pay them ?  And why should the value of every other commodity be determined by this one commodity ?  If money be a commodity, why does the government reserve the right to coin it, making its private coinage a criminal offence ?  Why not let any one make it, and dispose of it in market as of any other commodity ?  If money be merchandise, why is it, that it can be at all times exchanged for property and products, in any part of the country, and that all other more necessary commodities are at certain times esteemed almost worthless, compared with it ?  It is answered, that it is because it is made by law a legal tender in payment for debts — that it has this superiority over every other commodity.  But the very answer proves that it is not a commodity;  for a legal tender is a creation by law of certain properties which do not naturally belong to any substance, but which are made to represent all substances, and to control their exchange.  Governments have enacted their monetary laws upon the false principle that the gold and silver metals had an intrinsic value, and consequently a power in their material, before they were instituted as money, equal to their legal power and value after being so instituted.

It is sometimes said, that commodities are a sort of currency, because they can be and are exchanged for money.  But though a bushel of wheat may be exchanged for money, it does not possess any of the legal and distinctive properties of money.  The wheat does not become money more than a watch would become land by being given in exchange for land.

Some argue that the dollar derives its value from the labor required to mine and coin the silver for it.  They say that if a day's labor be required to mine the silver for a dollar, and a day's labor be required to raise a bushel of wheat, the silver and the wheat are of equal worth, and that the legal acts of the government cannot alter the value of either.  But if the equal amount of labor expended make the dollar and the wheat of equal value, why will the dollar at certain periods buy two or three times more wheat, or more labor, than it win at other periods ?  Why does not the value of labor and of wheat increase equally with the value of the dollar ?

When the products of labor command a high price, labor also commands a high price.  A given quantity of wheat or of other products will pay for nearly the same amount of labor every year.  But if the price of products be low, the employer cannot pay to labor a high price in money.  In seasons of depressed prices, a dollar will purchase double, treble, or quadruple the amount of labor that it ordinarily will, and this difference occurs when no more labor is required to mine and coin the silver.  Let those who maintain the theory, that the labor required to procure money constitutes its value, account, if they can, for these facts, so as to satisfy laborers and producers, the reward of whose labor, and the price and sale of whose products it so nearly affects.

Because money is held in lieu of labor performed, and in lieu of everything valuable, the public have been accustomed to consider money an actual equivalent in value to the commodity or labor it will pay for;  whereas in fact, it is only a legal equivalent or balancing power.  Air, water, food, clothing and a vast variety of other things are essential to the existence and comfort of man, and no one thing can be an actual equivalent for them.  It is as impossible that ten pounds' weight of gold should possess equal actual value with the four thousand bushels of corn, or four thousand days' labor which the gold will purchase, as that a small quantity of poison, frequently necessary as a medicine to restore man to soundness and health, should be of equal value with the corn or labor.  As many elements for the support of man exist in the poison, as in the money.  Both are useful in their spheres, the former to remove obstructions to health, the latter to facilitate the exchange of products.  Poison is of little value compared with food;  and money is as little valuable compared with property.  It would be as reasonable to esteem the comet which appears once in a century, more valuable to us than the sun that daily sheds its fertilizing beams upon the earth, as to esteem the actual value of gold and silver equivalent to that of all the necessaries of life.  If the quantity of gold were unlimited, not a thousandth part as much of it would be used as of iron.  The notion that gold and silver are endowed by the Creator with some mysterious value and capabilities, which render them of greater importance than the ordinary products of labor, is an erroneous and pernicious one.  Legal enactments cannot alter the inherent properties of metals.

The common opinion that the material of a currency must be something scarce and difficult to procure, that the limited amount may render it permanently valuable, arises from a misconception of the nature of money, the properties of which are entirely independent of the material.  Money consists in the legal powers to represent, measure, accumulate, and exchange property and products.  It receives its powers from law.  If gold and silver should become as abundant as iron and lead, the only difficulty in maintaining them the materials of a currency, would be the difficulty of protecting them from counterfeit.  Could they be protected, it would be as unnecessary to abandon them for a currency on account of their abundance, as to abandon the use of paper in making obligations, because more exists than can be used for that purpose.  If the quantity of gold and silver were unlimited, and that part of it which was needed for a currency were made a lien upon and representative of property, there would be nearly as great a difference between the value of the metals so used and bullion, as there now is between a paper obligation that is a lien upon valuable property and apiece of blank paper.

For ages gold and silver have been esteemed precious metals, containing a large amount of intrinsic value, although their inadequacy to supply natural wants is manifest, when we imagine a man with a bag of coins, on a desert island, and without the power to exchange them for other articles.  These metals have intrinsic, or actual value, and this value consists in their utility for utensils and ornaments;  their malleability, ductility and beauty rendering them, for some purposes, superior to all other metals.  But it will be confessed, that we could far better dispense with them than with any of the abundant metals, which are in more general and constant use, and the loss of which would seriously impair our comfort.

In early ages, gold and silver were, doubtless, selected for the material of money on account of their scarcity and the amount of labor necessary to procure them;  the same reason that led the American Indians to select the beaver-skin for a standard of value, by which the value of all other skins and commodities was estimated.  It has been already explained, that gold and silver, when used as money, cease to have any other use.  These metals have, however, received the sanction of governments as the material of money.  The laws require that coins used as a public tender shall contain a certain weight of the authorized metal — without which they are illegal, and cannot be enforced as a tender.  But the only reason that they are not received is, that they are unsanctioned by law.  If coins of base metal were endowed by law with the properties of money — that is, were made representatives of actual value, capable of accumulating by interest, and a public tender for debts, they would answer every purpose of money, equally well with coins of pure metal.  They could represent, measure, accumulate and exchange property, and these are the sole properties and uses of money.  Therefore they would be money, for anything that possesses the properties of money, without division, subtraction, or increase, is money.  But if the metal were used for purposes of dentistry, the difference between the pure and the base would at once appear;  for the metal would then be used otherwise than as the material of money, and its utility would not depend upon its legal powers, but upon its natural capabilities as a metal.

The value of money, then, depends upon its powers to represent, measure, accumulate, and exchange value.  These powers, given to any convenient material by Congressional enactment, will qualify it for a medium of exchange, and in every particular constitute it money.


1 [58/*]  Notwithstanding the care the government has taken to guard the use of money, there is in this nation more litigation, fraud and oppression, growing out of the corrupt use of money, in one week, and often, doubtless, in a single day, than all the evils that occur in a century from the fraudulent use of all other measures.

2 [65/*]  See Appendix, A.

3 [65/]  Although the value of money is now professedly fixed by the government, we can form no correct idea of what its value will be at the end of three or six months. But we should think it ridiculous to ask what would be the length of the yard, or the weight of the pound, or the size of the bushel three or six months hence;  or to express great anxiety when the crops were coming in and the fall trade commencing, whether enough measures could be procured to measure the grain, or scales and weights to weigh it, or yard-sticks to measure the cloth manufactured.  We should think farmers, manufacturers and merchants crazed, if they should come to New York to ascertain whether enough measures could probably be had to determine the weight and quantity of their products;  and under a just and sound monetary system, it would be equally absurd to ask whether enough money could be obtained to buy or exchange the goods, or to make any internal improvement;  and it would appear as ridiculous to ask what the rate of interest would be at the end of three or six months as to ask how many feet it would then take to make a yard.  Money properly instituted would be as definite and uniform as the latter measure, and would no more govern the amount of production than the yard-stick does the quantity of cloth manufactured.  It could be about as easily procured to facilitate all desirable production, trade and improvements as yard-sticks to measure any quantity of cloth.

4 [70/*]  We are accustomed to say that money is invested in property, but this is not true.  Money is no more invested in property than the yard-stick is invested in the cloth that it measures.  When money has passed from one person to another either as a loan or in payment for property, it is ready to be lent again or to be paid for another piece of property.  The money is no more used up by passing from one person to another than the yard-stick is used up by measuring a single piece of cloth.  We are often told in the money articles of the daily newspapers, that the money of the country has been used up in railroads;  but upon travelling over these roads we see evidences that a great deal of labor has been expended in grading them, furnishing the iron and timber and so forth, but we do not see any money.  If the money has been invested in these roads, it has now gone somewhere else;  and it is still going to and fro in the earth, and up and down in it.