Chapter VIII.


“ Money, the only power that all mankind falls down before.”—BUTLER’S “Hudibras.”

WHENEVER we are brought into a discussion of the money question, we are confronted with one great obstacle—a superstition—which has become strongly intrenched in the popular mind, what may be termed the fetichism of gold and silver.  So accustomed are we to associate things with their functions, there finally grows in our minds the idea of a personality belonging to the object itself, and we unconsciously ascribe to it human qualities and tendencies.  Thus we hear daily the expressions “ good money,” “ bad money,” an “ honest ” and a “dishonest ” dollar.  Gold is called “ cowardly,” and is said to “refuse” to circulate, and the very acme of fetichism is contained in the expression “ money talks.”

It is precisely this superstition which renders the money question so difficult of comprehension by the average man.  Accustomed all his life to handle coins which perform the money function, the metal to him is money itself, just as to a mechanic the idea of force is contained in the conception of a steam engine.  To him the engine becomes synonymous with the invisible force, instead of the instrument through which force is manifested.  To thoroughly grasp the science of money, we must distinguish between it and the material by which it becomes manifest.

The money question is the practical side of the value question, and it remains to be seen whether the theory of value, as propounded in the foregoing part of this work, admits of practical application or not.  In science, theory and practice must always agree, and when this is the case, the results of such practice must be those sought after.  The present monetary systems of the world may be briefly described as follows :—

In order to facilitate the exchange of goods, one commodity is selected as a standard to which all others are compared, and the “values” of all are expressed in terms of this one.  Gold is the standard commodity selected by the civilized world, and is the basis of all or nearly all the world’s monetary systems.  Money is therefore defined as a commodity, and is said to perform the functions of (1) a medium of exchange ;  (2) a common measure of value ;  (3) a standard of value ;  and (4) a standard of deferred payments.  The advantage of money as thus constituted, is stated to consist in avoiding the inconveniences of barter, viz., “ the improbability of coincidence between persons wanting and persons possessing ;  the complexity of exchanges, which are not made in terms of one single substance ;  and the need of some means of dividing and distributing valuable articles.”1  Money is said to overcome these difficulties by acting as a common denominator of values.

Innumerable discussions have taken place regarding the true nature and functions of money, but nearly all our modern economists agree in regarding money as a commodity.  Now I have already shewn that there is no such thing as a material standard or measure of values, that the very terms involve an absurdity, and their existence is impossible by the very nature of things.  Money is, therefore, not a standard nor a common measure of values, and it will be unnecessary to deal further with these two so-called functions.  We will now investigate the true origin, nature and functions of money, and then endeavour to solve the problem as to whether a commodity can perform the functions of money.  The origin of money can be traced to the inconveniences which the system of barter gave rise to.  These inconveniences arose from the very nature of things exchanged, viz., a want of divisibility.  Were all commodities easily and alike capable of division and sub-division, they might be exchanged in any and every proportion.  The difficulty of making all commodities proportionally exchangeable gave rise to the need of a means of reckoning and expressing these exchange proportions.

Thus, if a horse dealer desired fifty bushels of corn, and the corn merchant wanted a horse, an attempt to barter a horse for corn would be made.  The dealer considers, and the merchant agrees that the horse is worth 200 bushels.  Now, since it is impossible to divide a horse and still utilize his services, if the exchange takes place the horse dealer has 150 bushels of corn that he has no use for.  If he takes but fifty bushels, the merchant owes him 15o bushels or its equivalent.

There at once arises a debt, and from this inequality in exchange originates the need for money.  Now we have already seen, in discussing the subject of value, that the proportional relation in which commodities exchange with each other is termed value.  Hence, a system that is to avoid the inconveniences attending barter must be to express values.  I have shewn that values are only capable of numerical expression.  A monetary system must, therefore, be a numerical system.

Let us, in thought, transport ourselves to an age and place where material money is unknown.  The business and commerce of such a place will consist of the direct exchange of various products necessary to life and happiness.  A farmer will send his corn to market and barter it in various amounts for the different things he may need.  So the sheep-grazier will barter his sheep with the vintner for wine, the weaver his cloth with the hunter for game, and so on.

But certain inconveniences arise.  Occasionally the farmer, who needs wine, finds the vintner is not in need of corn, and as corn is all he has to pay with he is at loss to know what to do.  The farm-laborer who engages with the farmer on the basis of receiving a certain percentage of the crops for his labor, finds himself in need of boots, clothes and various other things.  He cannot always exchange his corn directly for what he needs.  The physician who has served the sheep-grazier does not care for mutton, hence sheep are not desirable to him.  How will the sheepgrazier repay the physician ?  Again, the carpenter, who has built a house for the vintner, finds that if he accepts wine in return for the house he will have enough to last him 200 years, should he live so long.  As he cannot live wholly on wine, he does not wish to accept payment solely in that commodity.

Here the necessity arises for some plan or system by which the industry and commerce of the community can be carried on without these difficulties arising.  The community is in need of an inventor, with brains enough to devise a means for overcoming these inconveniences.  Two plans may be suggested.  The one which has been most generally adopted we will describe first.  “ In process of time,” says Macleod,2 “ all nations hit upon this plan :  they fixed upon a certain material substance which they agreed to make always exchangeable among themselves, to represent the amount of debt.”

The substance selected was one which Professor Jevons says, “seems designed by nature for the very purpose,” viz., gold.  “ Since it can be melted, divided and sub-divided, is homogeneous, portable, cognizable, indestructible and stable, it appears the most appropriate substance for this purpose.”

The various merchants, farmers, sheep-raisers, etc., would, therefore, have to go to the goldsmith and arrange with him as best they may for a supply of gold pieces.  Having first agreed among themselves to accept these pieces in exchange for their several products in certain ratios, the business of the community would at once proceed, and obstacles previously encountered would be removed—providing always that these traders had power at all times to command gold with their commodities.  Failure on the part of the goldsmith to part with any more pieces, would simply throw the community back into its original barbaric state.  Were the inventor of such a scheme a nineteenth century operator, he would, prior to propounding such a plan for facilitating exchange, proceed to get control of all the gold and gold mines of the community.  He would then persuade the government of the community to pass a law making gold the legal tender, and fixing as an arbitrary standard of value a certain weight of gold.  Having accomplished these things, he could consider himself as rich “beyond the dreams of avarice.”  Having safely established the system for facilitating exchange, and assisted the community, by loaning them gold, he need only close his mines and hoard his treasure, in order to shortly have a substantial portion of the wealth of our imaginary society fall under his control.  By controlling the medium of exchange, he would control the entire commerce of the community.

Now, whilst the use of this substance, gold, would (so long as the gold merchants permitted it) facilitate exchange and avoid the complications before pictured, the system would still be a system of barter.  The exchange of corn for gold is as much barter as if exchanged for wine or anything else.  It is the exchange of one product directly for another.  There is here no appearance or conception of money.  Let us now suppose that gold and silver and precious metals were unknown to our imaginary community.  The inventor hits upon this plan.  He first finds the proportion in which all the various products stand to each other.  Thus, he finds that the farmer and vintner exchange one bushel of corn for one gallon of wine ;  the sheepraiser and farmer, one sheep for twenty bushels of corn ;  the weaver and vintner, one yard of cloth for two gallons of wine, and so on.  He then tabulates all commodities in their exchange relations, thus :—

Bushels of
Gallons of
Number of
Yards of

Arranging all commodities from the least to the most valuable, their exchange relations are thus expressed by their respective quantities.  By dividing their least common multiple by each number respectively, we find their exchange relation.  Thus :—


20     20        1        10
Corn Wine Sheep Cloth
=Corn Wine Sheep Cloth
1        1        20        2

By taking the integer one as a unit, commodities can be ranged one above another, thus one bushel of corn would be equivalent to one unit of purchasing power, and one sheep to twenty units, and so on, at this particular time and place.

Taking this unit to represent a unit of purchasing power, our inventor would suggest the printing on pieces of durable paper of convenient size, single units and multiples of units representing such purchasing power.  Such units may be termed macutes, francs, dollars, or pounds.

These notes might be issued by a bank established by the community or by its leading merchants.  This bank would be a mutual cooperative association for the purpose of exchanging individual for the bank’s credit, a small charge being made for insurance and running expenses.  Thus, in the case of the farmer and his assistant, instead of giving him, say ten per cent. of his crops, or perhaps one thousand bushels of corn for his services, he would, by consulting his table or market report (which would be published daily as now, giving the fluctuations in the various commodities), find corn marked, say ten units of purchasing power per bushel, and having exchanged his personal credit for that of the mutual bank he will then pay him notes to the extent of ten thousand units.  Similarly the sheep-raiser would give the physician notes to the extent of thirty or forty units, and so on.  If the community be a small one and each member agrees to accept the notes of another, such notes can be issued individually ;  otherwise the mutual bank of the community collectively would issue them.  Here we have the true and scientific form of money.  In the first case, as we saw, money does not exist.  It is merely the bartering of all commodities for one particular commodity.  In the last example, the medium of exchange is not a commodity.  The exchange of corn for so many arbitrary units expressed on pieces of paper, is not the exchange of one commodity for another, but for a right or power to demand services or commodities at any future time.  The only requisite that such notes need to constitute money is, that the members of the community shall agree to accept them in exchange for products.

Consider, for instance, the transaction between the farmer and the farm-laborer.  Entitled to ten per cent. of the crops, the latter finds himself unable to utilize the produce in the way he desires.  The farmer owes him, as we saw, one thousand bushels of corn ;  but the laborer wants shoes, clothes, hats, and a variety of commodities.  Now suppose the farmer pays him the price of the corn in gold.  He is as badly off as if he were paid in corn, unless the gold be more generally acceptable than the corn, since it is not the gold he wants, but what it will procure.  The payment of the notes, or, in other words, the money, is the acknowledgment on the part of the farmer of a debt equivalent to one thousand bushels of corn at that particular time and place.  The notes are orders upon any and every member of the community to render this man goods and services equivalent to the one thousand bushels of corn, and if the notes be issued by the farmer, the community looks to him to redeem them in corn.  If issued by the community collectively, they may be redeemable by the government of the community by taxation, or remain in circulation.  The payment of the notes or money is not an exchange of two products, such as in the case of a gold medium.  The farm-laborer has exchanged his product, viz., services, for an order or right to demand an equivalent of one thousand bushels of corn.  Being socially recognized and acceptable, and expressed in terms in which the purchasing power of all commodities are commensurable, this paper serves as a means of expressing values, and is therefore, strictly and scientifically speaking, money.

“ The true nature of money is now apparent.  It is simply a right or title to demand some product or service from someone else.  Now when a person accepts money in exchange for products or services rendered, he can neither drink it nor clothe himself with it ;  nor is it any species of economic satisfaction for the service he has done.  He only agrees to accept it for the service he has rendered because he believes, or has confidence, that he can purchase some satisfaction which he does want at any time he pleases.  Money is therefore what is termed credit.”3

The term “medium of exchange,” would indicate a distinction in the very nature of that which serves as a medium and that of the things exchanged.  The transaction known as selling is not a barter nor a complete exchange transaction.

It is not the exchange of one product for another ;  it is what is termed a demi-exchange.  The exchange is but half completed ;  it is only complete when we have purchased what we need with the money.  Then, and only then, is the exchange completed, and reciprocal satisfaction effected.

“ A sale of goods for money,”4 says Francis A. Walker, “is only half a transaction ;  the other half takes place when the money itself is sold for the goods.”  The medium of exchange must therefore not be regarded as a commodity, nor must it be subjected to the same influences.

It must be absolutely neutral, since it must express accurately the exchange relations of commodities to each other.

The idea of money originates in the desire to effect an exchange, when two commodities of unequal exchange power confront each other.  Thus, referring to our former illustration :  supposing the vintner desired of the farmer 1000 bushels of corn, and agreed to exchange at the ratio of 1000 bushels of corn = 1000 gallons of wine, but the farmer needs only one gallon of wine, and cannot use more.  The vintner, therefore, would owe the farmer the equivalent of 999 bushels of corn, viz., 999 gallons of wine, in such a transaction.  The farmer requires substantial evidence of this debt on the part of the vintner to him, and in such a form that he can transfer it to others for the things that he desires to procure, and which they possess.  In order to make such evidence available, it must be socially recognized and generally acceptable.  Suppose under the first system of exchange the vintner pays the farmer the difference in gold.  In the absence of any legal tender act, or any governmental interference, has the vintner discharged the debt ?  This would depend upon whether the farmer accepted the gold in the final discharge of the debt, and his acceptance would depend upon whether society would do the same.  He would accept it, therefore, only as a medium, a means of providing what he needed.  But now, observe the difference in the result between a commodity medium and true money, such as I have described.  In the use of gold, such a medium is recognized to be the equivalent per se of the commodities purchased.  It is given in final discharge of the debt or obligation.  Now, no one believes that gold, functioning as a means of exchange, is of any special benefit ;  it yields no comfort or happiness outside of its acquired money functions ;  it gives no economic satisfaction ;  it is not wanted.  Hence, the gold-medium as gold is simply useless.  It is of no greater utility than the paper upon which the number of units of purchasing power is engraved.  It does nothing more than any material which performs the functions of money.  Suppose the vintner pays the difference in a note representing his debt, is the debt finally discharged ?  No, not until the note is redeemed in goods.  He owes the equivalent of 999 bushels of corn, that is, 999 gallons of wine, and if society agrees to accept his note, it looks to him for its redemption.  In this case society would get 999 gallons of wine, a useful and desirable article, instead of several pieces of gold, which, as money, are of no more use than paper.  The use of metallic or commodity-money, therefore, deprives society of a number of useful commodities, and substitutes that which is, comparatively speaking, useless.  We have, therefore, this principle :  The use of commodity-money entails a loss upon society equal to the cost of producing the amount of the commodity so used.  By placing money on a scientific basis and making it redeemable in all commodities, instead of in one, and that one a comparatively useless one, the gain to the world would be incalculable.  When I speak of gold as comparatively useless, I mean that if it were suddenly and completely dissociated with money, it would become almost a drug upon the market, and fall in price as silver has recently done.  Although economists admit that the seller has not received satisfaction until he has exchanged the money for some desirable products, still they regard the transaction as complete, and the debt finally discharged, as soon as the money is paid ;  hence, there is an economic exchange without reciprocal satisfaction, which is scientifically impossible.  Now we saw when treating of barter that the test of a complete exchange was reciprocal satisfaction.  Both parties to the transaction must receive satisfaction, by an exchange of desirable commodities, utilities.  The exchange of a commodity for commodity-money is an absurdity.  It asserts discharge of the obligations of the one to the other, with but one satisfaction.  It declares the transaction to be complete when it is incomplete.  The exchange is said to be complete without accomplishing the natural results of an exchange.  As a final discharge of obligation, the commodity takes precedence, and declares the exchange transaction completed.  As money it asserts itself as being the medium of exchange ;  not the thing desired but merely its representative, a means to an end, the middle thing, the mechanism of exchange ;  hence, the contradiction.  Therefore we are compelled to barter our goods for one particular commodity, which we do not want, in order to acquire the means by which we can ultimately acquire the commodity we do want.  Money is said to express values, and is also called a common denominator of values.  Thus, Francis Walker says : 5 “ Value, economists are pretty much agreed, is a relation, and for the purpose of the present discussion we may so take it.  But surely a relation, a ratio, cannot be measured !  You do not measure the relation of a mile to a furlong ;  you express it as 8:1.  You use a common language for the two quantities.  You take a common term or denominator for the two distances and thus set them in immediate comparison with each other.  Were you, for example, to say that a mile is 63,360 inches, and a furlong one twenty-fourth part of a league, the untechnical and unskilled hearer would form no idea of the relation between a mile and a furlong.  Instead of this, you take one quantity, the furlong, as unity, and state the other in terms of it, and the least learned and least practised hearer at once apprehends the relation.  This is precisely what is accomplished by money.”

Nothing can be clearer or less ambiguous than this description of the function of money.  After this exposition of the matter, it is astonishing to find this writer, further on, falling into the very error he is warning others against.  He says : 6 “ Given the fact of a general desire of one article of uniform quality, which is susceptible of easy and exact division, we have all the requirements of a common denominator in exchange satisfied.”  But what, in the name of common sense, has “ a general desire ” for an article to do with “ a common denominator in exchange” ?  We exchange dissimilar things, one kind for another kind.  We do not exchange things of the same denomination for each other.  For instance, we exchange wheat for butter and butter for gold ;  not butter for butter or gold for gold.  How can there be a common denominator for things of unlike denomination ?  The statement is an absurdity.  Now the exchange relation is capable of expression in a common language.  Whilst the commodities themselves cannot be brought to terms of one denomination, their exchange relations can, and these relations are their values.  What has desire to do with ratio ?  Values, as we have seen, are relations of quantities, ratios of quantities, and can be expressed in numbers.  A common denominator of values is, therefore, a common denominator of numbers ;  or, in other words, it is a common denominator of quantities, not of qualities.  Here, for instance, are two commodities whose value relation is as follows :  1 lb. sugar : 1 lb. coffee : : 2 : 25 ;  which shows that 25 lbs. sugar exchanges for 2 lbs. coffee.  What is the common denominator for this expression of value ?  The value of sugar to coffee is as 2 : 25.  Since these are integers, they are commensurable with unity ;  therefore unity is the common denominator of their values.  The common language of values is numbers.  They cannot express themselves through a medium of gold, silver, or corn, any more than a man can express his thoughts through the medium of his clothes.  A “ general desire for one article ” has no more to do with a common denominator of values than a demand for clothes has to do with language.  In fact, it would be as sensible to talk of expressing the relation of a furlong to a mile by “ an article ” for which there was a “ general desire,” as to talk of expressing values, or constituting a common denominator of values, by the same thing.  “ You do not measure the relation of a mile to a furlong ;  you express it thus, 8 : 1.  You use a common language for the two quantities.  You take a common term or denominator for the two distances and thus set them in immediate comparison with each other,” says Professor Walker.  Precisely so !  and this is exactly what you do with values.  “ You use a common language for the two quantities,” and any article of uniform quality, “ for which there is a general desire,” is as incapable of measuring or expressing the exchange relations of commodities as it is incapable of expressing the ratio of a furlong to a mile.  Both are quantitative relations, and both can only be expressed numerically.  The long and somewhat skilful argument by which Professor Walker endeavours to overthrow the errors of the so-called “ Hard Money ” advocates, is founded upon a fallacy as great as those he seeks to expose.  When he writes of money as “ expressing values ” and as the “ value denominator,” he is writing correctly and scientifically.  When, however, he writes of money as an “ article of uniform quality, susceptible of easy and exact division,” he is treating money as a commodity, and from the standpoint of a legalized institution.  Scientifically speaking, it would be just as sensible for a government to pass a law declaring that there shall be two sunsets every twenty-four hours, or black shall be white, as to declare that 25 8/10 grains of gold shall be a “standard of value,” and that money is a commodity.  Legislators declare money to be a commodity ;  science says it is not and cannot be.  And so in trying to reconcile two opposing and contradictory theories, Professor Walker, in common with Macleod and many other able economists, misses the goal towards which the science of economy unerringly points.  Approach the subject from whatever standpoint you may, providing it is in the true scientific spirit, and the only solution to the money question is found in releasing money from its association with a commodity.  This is not the first occasion that the laws of nations have conflicted with those of science.

The pranks played by this association of money with a commodity are the strangest possible.  It has led economists into a perfect labyrinth of mystery and confusion, until the science of exchanges resembles a Chinese puzzle.

It has led Francis Walker, one of the cleverest economic thinkers, to conclusions directly opposite to those he should logically have reached ;  similarly with Macleod, the mathematical economist.  It made the former condemn paper money, after having satisfactorily and conclusively proved it to be capable of performing perfectly well the money functions, because it did not, forsooth, possess the functions of a commodity ;  and yet he starts with the definition “ Money is that money does, that is, money ;  all that is money ;  only that is money, which performs a certain office.”  As well might he condemn a horse for not possessing wings, or a cow for not raising wool.  That which satisfactorily performs the money functions is good money, just as a steam-engine that performs the work required of it is a good engine.  Again he says :  “ Money is that which passes freely from hand to hand, throughout the community in final discharge of debts and full payment for commodities.”

In another place he says, that “ When a man accepts money in payment for the product of his labor, he parts with that which, presumably, was capable of gratifying his own tastes and bodily needs, and takes instead, something which he does not intend or desire personally to consume or enjoy, or use in any other way than as the means or medium of securing later or elsewhere that which shall satisfy his individual wants.”  And again, “ A sale of goods for money is only half a transaction.”7  How can both parties to a transaction be considered as “finally discharged” of debt, and “full payment” for commodities declared to have been made, if the transaction is only “ half a transaction ” ?

I have dwelt at length upon the commodity aspect of money, because it is this association which is the cause of most of the world’s financial troubles.  It is the conflict of two opposing forces that unsettles industry periodically.  Money is constantly seeking to perform its functions as the medium of exchange, and is every now and then hindered and restrained by the commodity governing it, and as a general thing the commodity is master of the situation.  It insists upon asserting itself.  It causes the money, or rather the material by which money is known, to leave the country, to stay at home, to circulate, to be hoarded, to be plentiful or scarce, as seems most profitable and desirable to its owners.  Commodity-money only facilitates exchange when it is more profitable for its controllers to do so than not.  “ The coinage of this specie basis,” says William A. Whittick, in his admirable little pamphlet on the money question, “constitutes a world-wide monopoly of money which exploits industry to an appalling extent.  It alternately stimulates and paralyzes industry ;  it is, in the hands of its owners, both the life and death of business enterprise.  So far as it goes, and that is but a little way, it is life, but its limit is paralysis.  We carry on our business enterprises until the money gives out ;  but the limit should be labor and material.  How the discoveries of gold in Australia and California in 1847 stimulated the world’s industries ! !  And yet the basic factors of that industry existed before these gold discoveries.”

To sum up then :  We have now discovered the true origin, nature and functions of money.  It is an ingenious invention to avoid certain difficulties and inconveniences brought about by unequal exchanges.  It represents the inequalities in these exchanges, or, in other words, debts.  In order to do this satisfactorily, it must be capable of representing and expressing precisely the exchange relationship of one commodity to another, or, in other words, values.  Since values are the exchange relations between different quantities expressed numerically, it follows that the money must consist of some system of numbers by which these ratios are expressed.  By bringing all commodities to an exchangeable equality, we find the numbers representing their exchange proportions.  By finding the least common multiple for these numbers, and dividing it by each, we get the value expressions of all commodities in simple numbers.  Since these are whole numbers, unity may be adopted for the common unit, and we have at once the relations of the purchasing powers of all commodities in terms of an invariable unit.  The general adoption of this plan will enable anyone, at a glance at the daily market reports, to see the prices of any commodities.  These units recorded fractionally, singly and in multiples on paper, issued for debt and made redeemable in all commodities, constitute money in the strict scientific sense.  It thus becomes, in truth, the medium of exchange, not the end.  Its units being invariable, it becomes a perfectly safe and scientific standard by which to reckon deferred payments.  A commodity is the end desired by exchange ;  money is only a means to that end, the mechanism by which exchanges are effected.  A sale of commodities for money is, therefore, not an exchange.  Exchange is then only in a transitional state ;  it is incomplete.  It is completed only when a purchase of goods for the money takes place.  A purchase is the complement of a sale.  The two acts, by the same person, with the same money, is a complete exchange.  The end sought in exchange is, therefore, the acquisition of commodities, not money.

1 Prof. Jevons.

2 “ Theory of Credit.”

3 Macleod, “ Theory of Credit.”

4 “ Money and Trade.”

5 “ Money, Trade and Industry.”

6 “ Money, Trade and Industry.”

7 These quotations are all taken from Prof. Walker’s book, “ Money, Trade and industry.”