A Fraudulent Standard



ONE of the most elementary and important duties of civilized governments is the legal establishment of just methods of physical measurements.  In the establishment of such methods and the selection of standard units, the chief consideration is how to obtain uniformity and invariability.  For example, the British standard unit of length called the yard is the distance between two parallel lines on gold studs sunk in a bar of bronze, at the temperature of 62 degrees Fahrenheit.  The temperature is necessarily specified because of the expansiveness of metals under heat and their contraction under cold.

Atmospheric pressure is also provided for, since it is found that a difference of one inch on the barometer causes an appreciable variation in the length of the standard bar.

Similarly with regard to weight.  The imperial standard of weight is called the pound, and is the earth’s attraction on a certain mass of platinum placed in a vacuum at sea-level in London.  Sea­level is adopted for convenience to fix the altitude, since the weights of bodies vary with their distance from the earth’s centre.  Moreover, since the condition of the atmosphere varies in time and place, causing also apparent variations in weight, a vacuum is chosen as the safest plan for obtaining invariability.  The enormous importance of establishing uniformity in these matters is obvious to any one possessing the faintest knowledge of applied science and the manufacturing arts.

Without these safeguards, our modern economic life and methods would be impossible.  To take two extreme cases by way of illustration.  One has only to imagine the results of employing a tube of mercury, without any regard to temperature, for measuring distance, or a mass of wood without regard to quality, density, or altitude, for measuring weight, to realize the confusion—to say nothing of the dishonesty—which would ensue.

Next in importance to our physical units of measurements, ranks our monetary system in terms of which the values of commodities are indicated, exchanges are effected, debts are made and paid, and property and wealth of every description is estimated.  During the past century, money has assumed an economic and social importance and power greater than it has ever possessed in the world’s history.  It is by means of money that the annual wealth production of all industrial countries is distributed, and any serious variation in the general purchasing power of the monetary unit necessarily inflicts injustice and hardship upon nearly all classes—the producing classes more especially.  The monetary unit, therefore, should be established in such a way as to prevent its being subjected to sudden variations in supply and demand which would affect its purchasing power.

A monetary system may be regarded as a scale upon which variations in the values of commodities are registered, and the first requisite for such a scale is invariability.  When choosing a material for a thermometer or barometer scale, scientists were governed by the necessity for providing a scale that would be unaffected by ordinary temperatures and atmospheric conditions, otherwise the registration of atmospheric temperature and moisture by mercury would have been extremely unreliable.  The same applies to the subject of money and values.  Now our monetary unit—the pound—is also termed the “ standard of value,” a term which is scientifically misleading, as I shall presently show.  This “ standard ” as established by British law is the golden pound (or sovereign) containing 113 grains of pure gold.  But no provision has ever been made by any Government for the purpose of furnishing its citizens with a sufficiency of gold in order that the supply should be always proportional to the demand.

The sole conditions which determine the commercial value of the standard, viz., supply and demand, were seldom—if ever—discussed.

It will be seen, therefore, that in establishing our monetary unit by which exchange and commercial dealings are regulated, our legislators failed to be guided by the same rules which have governed the world’s scientists universally in their work of establishing the standard units of weight, length and capacity.  Invariability apparently was not even considered.  By selecting a commodity as the monetary unit, or “ standard of value,” our law makers established a system by which speculators and financiers have been permitted to rob the industrial and trading classes to an incredible degree, whilst our entire industrial and commercial system has been placed upon a speculative and unstable basis resulting in innumerable economic evils and losses.

Any intelligent discussion regarding the “ standard of value,” however, necessitates some knowledge of the science of value.  What is “value ” in the sense in which it is used ?  Our modern economic schools have divided the subject into several classes, such as use-value, exchange-value, esteem-value, cost-value, etc.  But the particular kind of value which is referred to in discussing the “ standard,” is exchange-value.  Now all economists practically agree in regarding exchange-value as a relation.  Jevons was particularly careful in defining this term.  He says :—

“ Value in exchange expresses nothing but a ratio, and the term should not be used in any other sense. . . . Every act of exchange thus presents itself to us in the form of a ratio between two numbers.  The word `value ’ is commonly used, and if at the current rates, one ton of copper exchanges for ten tons of bar iron, it is usual to say that the value of copper is ten times that of iron, weight for weight ” (The Mechanism of Exchange).

Macleod in his Theory of Credit also defines exchange-value as a ratio.  In another place Jevons says :—

“ Value, like utility, is no intrinsic quality of a thing, it is an extrinsic accident or relation.”  “Bearing in mind that value is only the ratio of quantities exchanged, it is certain that no substance permanently bears exactly the same value relatively to another commodity ”

which should have been sufficient to warn statesmen against choosing a “ substance ” as a “ standard measure of value.”  He continues :—

“ A student of Economics has no hope of ever being clear and correct in his ideas of the science if he thinks of value as at all a thing or an object, or even as anything which lies in a thing or an object.  People are thus led to speak of such a nonentity as ` intrinsic value.’ . . .”

Here we have a definite statement from one who was, and is still, universally recognized among the greatest authorities on this subject, to the effect that value is not intrinsic, and the term “ intrinsic value ” is nonsense.  And yet our monetary standard, the legal “ measure of value ” established by Parliament, was deliberately chosen because of its “ intrinsic value.”  Sir Robert Peel in his speech of May 6, 1844, quoted approvingly and authoritatively from a pamphlet written by a Mr. Harris, an officer of the Mint, as follows :—

“ All payments abroad are regulated by the course of exchange, and that is founded upon the intrinsic value and not on the mere names of coins.”

In spite of the clear definitions already quoted, both Jevons and Macleod apparently forgot all about them as soon as they attempted to deal with the subject of a standard.

With regard to the latter Jevons wrote :—

“ Since money has to be exchanged for valuable goods, it should itself possess value, and it must therefore have utility as the basis of value. . . . It is essential in the first place to decide clearly what we mean by a standard unit of value.  This must consist of a fixed quantity of some concrete substance defined by reference to the units of weight or space. . . .”

But if value is an “ accident,” a “ relation,” a “ ratio,” or, as defined by Macleod, “ an affection of the mind,” what sense is there in the term “ standard of value,” or in attempting to establish a “ standard unit ” of an “ accident ” or a “ relation,” or a “ ratio ” by “ some concrete substance defined by reference to the units of weight and space ” ?  Surely there is something radically wrong with these definitions of value or with the term “standard ” as applied to value !  To write of a standard of “ ratio,” or a standard of “ accident,” or a standard “ affection of the mind ” is to write nonsense.

The cause of this confusion has been due to economists failing to distinguish between different kinds of value.  This confusion has been clearly exposed by Mr. C. Moylan Walsh in his able work entitled The Fundamental Problem in Monetary Science.  When discussing one phase of the subject, writers refer to one aspect of value, such as esteem-value, and when discussing another phase they sometimes refer to another kind, such as cost-value, the result being that they often fail to arrive at any satisfactory or scientific conclusions.  A further cause may be traced to the evident desire of certain economists to invent theories which shall agree with and justify existing institutions.  This has been particularly the case with regard to the subject of interest on loans, to justify which, hundreds of volumes have been written and published during the past three centuries.

So far as our subject is concerned, it is generally agreed that the particular form of value with which money as the mechanism of exchange has to deal is exchange-value.  Now exchange­values are merely the quantitative relations established among commodities by their buyers and sellers during the process of exchange, and they are known and expressed by numbers representing the quantities in which they are regarded as exchange equivalents.

For example, supposing 1 oz. gold to be exchangeable for 12 gallons wine, this can be stated as follows :  1 oz. gold = 12 gallons wine.

The sign of equality used to express exchange relations means “ will exchange for.”  It also implies that each party to the transaction obtains equal economic satisfaction.  There is nothing physically equal in these commodities.  But there is a means by which variations in exchange can be expressed, and it is something common to all commodities.  What is it ?  Certainly not substance.  There is nothing materially common between gold and wine.  But these are dealt in and exchanged in definite quantities, and quantity is the only thing common to all.  Common to both commodities are quantities represented by numbers, and the values are and can only be expressed by these numbers 1 and 12.  The exchange relations of gold in ounces to wine in gallons are 1 : 12.  Now, supposing that later this relation changes so that 1 oz. gold = 16 gallons wine, and another time becomes 2 ozs. gold = 16 gallons wine.  It is obvious that the variations in exchange values are indicated by corresponding variations in quantities and quantities only.  No other changes in the expressions occur, save in the numbers indicating quantities.

Gold and silver coins function as the expressions of values merely as counters, by the numbers of such coins in use, and so long as the number is preserved it matters not whether these counters are made of silver, gold, ivory, paper or cardboard.  In short exchange-values are quantitative, and therefore their expression is the expression of quantities.

There is no common physical standard of measurement applicable to a penknife and a cubic foot of illuminating gas.  There is no single standard for measuring a horse and a musical performance.  And yet we can say that 1 penknife = 1,000 cubic feet of City gas, and 1 horse = 50 stall seats at an Albert Hall concert.

Now the first part of our problem in attempting to find a method of expressing values is to discover a common denominator for all exchange-values.  Suppose we collect all these commodities and exchangeable things and divide them into equal exchange proportions.

A clue to the solution of our problem may be found in the obvious truth that all commodities are of equal exchange-value in certain quantities at certain times and places.

It would be possible to tabulate all commodities on a scale of equal exchange power by adjusting them quantitatively.  Thus 1 horse = 50 concert stalls = 6 ozs. gold = 72 gallons wine = 150 penknives = 150,000 cubic feet gas and so on at a given time and place.  It is evident that the only thing common to all this odd assortment of exchangeable articles is quantity, and the only thing that varies in obedience to the change in their values is their quantities.