Chapter XI.


PRICE is defined by economists as the “money value” of commodities.  Francis Walker defines it as the “power a thing has to purchase money.”  He, however, in common with most other writers, uses the term value as synonymous with purchasing power.  I have already pointed out the difference between these two terms.  The definition above given, viz., “the power a thing has to purchase money,” whilst in one sense a correct one, conveys the idea that the price of a thing varies, not only with the demand for the thing itself, but with the demand for money.  In other words, by this definition the idea is implied that money is a commodity, and therefore is subject to the law of supply and demand.  We have seen that money is the expression of values of commodities.  But how is it possible to accurately express values by a medium which is itself subjected to independent influences ?

Imagine a thermometer, the scale of which is composed of a highly expansive substance, and so situated that it is acted upon by an artificial heat, to which the bulb is not exposed.  It is evident that such conditions would render the thermometer altogether worthless.  We should have a scale whose graduations measured 1-32 of an inch one day, 1-16 of an inch another, 1-8 another, and so on, according to the degree of artificial heat to which it is exposed.  Hence, without any change of atmospheric temperature, we should find the scale registering, say, 60 one minute, 70 another, 80 another, and so on.

This is precisely analogous to what happens in our monetary system with commodity-money.

The bulb or mercury corresponds to commodities ;  the atmospheric heat to supply and demand to which commodities are subjected.  The scale represents money and the expansive substance is gold.  The artificial heat bearing upon the scale is the supply and demand of money.  Now it is very certain that so long as money, or its commodity, is subjected to the law of supply and demand, it becomes quite impossible for it to register, even with an approximation to truth, the actual variations in the values of commodities.  As a means of accurately expressing values, such a system must, from the nature of things, be a total failure.  And when we reflect that this scale—money—is controlled by a class of speculators whose interests it is to be continually changing it,—first enlarging and then diminishing its graduations,—changing the purchasing powers of dollars and sovereigns by manipulating their supply, —how unreliable such a monetary system is, how false it must be in its mission, how dangerous to commerce and industry, how menacing to the welfare of society, the slightest consideration will make evident.

I have already shewn that all commodities may be considered to have special purchasing power, whilst money is general purchasing power.  I should, therefore, define price as the special purchasing power of commodities, expressed in terms of general purchasing power.  The price of a thing is its special purchasing power expressed in units of general purchasing power.  The immense advantage which an invariable medium of exchange affords to commerce we may readily see, as well as the disadvantages arising from a variable one.  With money as an invariable medium, there can be no such thing as a general rise or general fall in prices.  This phenomenon occurs whenever money is affected by the law of supply and demand.  With a scarcity of money prices go down, and with a glut of money prices advance.  By following to its termination a complete exchange, we shall best perceive the serious evils arising from the use of a variable medium.  A complete exchange transaction is accomplished only after the money received for the sale of one commodity is used to purchase some other.  For example, let A represent a commodity for sale, M the medium of exchange (money), and B another purchasable commodity.  Now the sale of A is represented by A=M ;  but as money is only a means to an end—an intermedium—the exchange operation is but half performed.  It is completed as soon as the money is used to purchase something else.  M=B represents, therefore, the second half of the exchange transaction, which is wholly represented by A=M=B, which represents exactly the true functions of money.  It shows that A is exchanged for B through the intervention of M.  M should, therefore, merely record the relations existing between A and B, and in order to do this, it must be, per se, neutral.

Whilst economists recognize the variations to which commodity-money is subjected, they argue that these variations do not work injustice, since they affect all commodities proportionately.  Thus if M increases in volume and affects the price of A, it affects B to the same degree, and, therefore, the relation of A to B is expressed as accurately as if M had remained constant.  Thus, John Stuart Mill says :  “ The relations of commodities to one another remain unaltered by money ;  the only new relation introduced is their relation to money itself, how much or how little money they will exchange for ;  in other words, how the exchange value of money itself is determined.”  Now, it is true that “ the relations of commodities to one another remain unaltered by money,” providing that the complete exchange takes place at the same instant and in the same place ;  but if between the time of selling A and purchasing B an interval elapses, during which M has changed its relation to A and B, then it is certain that the use of M does alter the relations of commodities to one another ;  and this is what generally happens.  It is seldom that a man finds it convenient the instant he sells his goods, or receives money, to purchase other commodities.  He finds it necessary, as a rule, to store it for a time when he will need certain things.  Under our present system of credit, goods are invariably sold upon time, 30, 60 and 90 days.  The prices for which such goods are sold are those ruling at the time of the sale.  If, therefore, a change occurs in the supply and demand for money, during the time given for payment, it is very certain that an injustice may be done to the seller by this disturbance, since the relation of commodities to each other has been changed by reason of the change in the purchasing power of money.  With a medium of exchange liable to experience all the fluctuations to which other commodities are subjected, by reason of variations in supply and demand, by “corners,” gambling and speculation, is it any wonder that success in trade and commerce seems to be a mere matter of chance and good luck, rather than the natural results of conforming to certain scientific laws and steadfastly working along their prescribed lines ?  Here, then, we find another proof of the absurdity and perniciousness of basing money upon a particular commodity, already demonstrated in discussing the Gresham Law.

1 “ If all prices were altered in like proportion, as soon as money varied in value, no one would lose or gain, except as regards the coin which he happened to have in his pocket, safe or bank balance.  But, practically speaking, as we have seen, people do employ money as a standard of value for long contracts ;  and they often maintain payments at the same invariable rate, by custom or law, even when the real value of the payment is much altered.  Hence, every change in the value of money does some injury to society.”
     “ It might be plausibly said, indeed, that the debtor gains as much as the creditor loses, or vice versa, so that on the whole the community is as rich as before ;  but this is not really true.  A mathematical analysis of the subject shows that to take any sum of money from one and give it to another will, in the average of cases, injure the loser more than it benefits the receiver.  A person with an income of one hundred pounds a year would suffer more by losing ten pounds than he would gain by the addition of ten pounds, because the degree of utility of money to him is considerably higher at ninety pounds than it is at one hundred and ten.  On the same principle, all gaming, betting, pure speculation, or other accidental modes of transferring property, involve, on the average, a dead loss of utility.  The whole incitement to industry and commerce and the accumulation of capital depends upon the expectation of enjoyment thence arising, and every variation of the currency tends in some degree, to frustrate such expectation and to lessen the motives for exertion.”—“ Money and the Mechanism of Exchange,” JEVONS.