at a loss, or, at any rate, he can recompense himself by enhanced prices. The retail trader may suffer by the fact that his customers are likely to be fewer. But the labourer is sure to suffer; for, first, he is obliged to offer his labour for what it will fetch at the moment, and he has generally no power to wait for the market improving; and, next, custom determines the price of labour more than it does that of any other article which is offered for sale. We shall have occasion hereafter to give abundant proofs of these positions.

CHAPTER IV.

On the Substitutes for Money.

WHEN a man sells his goods or his work, he really means to get other useful articles in exchange. If he takes, as he almost always does, money, he does so, because, as we have seen, he can always get as much or nearly as much for money, at some future time, as he would get for it when he took it. During the time that he holds his money, it is of no use to him, that is, it brings him no revenue, no advantage beyond the command which he has over such articles as he wants, by the fact of his possessing it.

Everybody however who has property, wishes to get some use or advantage out of it. He does not want it to be idle. If he buys land, he expects rent; if he gives labour, he expects wages; if he lends, he expects interest.

No reasonable person would care to have his land untilled, his labour unemployed, his capital unproductive. And as he does not wish other parts of his property to be useless, so he does not wish his money, i.e. such part of his property as is represented by the precious metals, to be of no service to him. No rational man now-a-days would turn all his property into gold and silver, shut it up in a box, and take it piece by piece out, as he wanted to purchase what he needs for his daily life. He must, to be sure, have some ready money, but he only keeps as much of this as he needs.

Now it is from the confusion between the convenience of having ready money, and from the fact that money is for any other purpose than the supply of what one wants, wholly useless, that people have failed to see the real functions which money fulfils. If a man were alone on an island, or indeed if there were few persons on such an island, and they had no communication with any other country, the most abundant supply of the precious metals would be of no earthly use at all as money. It is only when labour is divided, and men rely on each other for the supply of the necessaries or conveniences of life, that money has any use.

A man hoards because he fears for the future. He knows that he can sell gold and silver more easily than he can anything else, particularly if he has it in such a form, as that the least possible trouble is given to those who buy it, as far as regards their giving a judgment on its weight and quality. So if governments are rapacious, or credit is low, or the future is uncertain, men hoard money, because they know that what they hoard gives them a fuller and surer command over the market

than anything else can. But if on the other hand government is conducted with a view to the public good, and credit is high, and there is no fear for the future of society, men do not think of hoarding, because hoarding money means losing a profit on a part of one's property. Money, in short, is to an individual that part of his possessions which gives him the greatest power over other objects, but which as long as he retains it yields him no return. To a community it is the machinery of trade, necessarily expensive, because it must be a great value in small compass, but is still only machinery.

Now we have seen, in the outset of the inquiry into the causes which bring about public wealth, that one of the most powerful of these causes is the disposition which people have to get the greatest possible results with the least possible labour. This motive influences societies of men as well as individuals, and if it be unchecked, it leads men, first to select that kind of labour which they can do best, and next to make the work they do as easy and as little costly as possible. And as they economize to the fullest possible extent the machinery of production, so they economize as far as they can the machinery of exchange.

To effect this result, they ordinarily, though perhaps without reflecting that they do so, use as little money as they possibly can. They buy and sell in foreign countries, but they contrive either directly or indirectly to make what they sell pay for what they buy. Occasionally they are obliged, for causes which we shall investigate hereafter, to buy with money; but in the vast majority of instances no money is used to liquidate debts on either side. The foreign trade of this country is not much less than

£500,000,000 annually, taking exports and imports together; but the specie which constitutes the machinery of this enormous trade, cannot be more than the sum which is retained by the Bank of England as bullion; and great part of this is used to support the notes which circulate within the country. Let us see, then, how this economy is effected.

In the first place, then, and for many ages, the cost and risk of transporting money from one country to another has been obviated by the use of certain instruments called Bills of Exchange. An Englishman has bought goods in France; a Frenchman has bought goods in England. If the transactions were single and independent, the Englishman would need to transport money to France, the Frenchman to transport money to England, and each must incur the cost of carriage and the risks of the transit, to say nothing of the loss of any use in the money during the process of transfer. Now it is clear that in these cases, it is possible to adopt some mechanism, by which these risks and losses may be obviated, and that persons will be found who will take upon themselves the office of intermediaries between these merchants. And the machinery for effecting this result is very simple: the Frenchman calls on the Englishman to acknowledge his debt by accepting a demand which the Frenchman makes on him for goods sold; and similarly the Englishman makes his claim on the Frenchman. If, thereupon, some one can be found who will undertake to exchange the acknowledgment of the first debt against the acknowledgment of the second, the debts may be made to act as a set-off against each other; and provided all the bills on England equal all the bills on France, the debts may

be balanced without the transmission of any money at all. Even if they do not balance between two countries, there is sure to be found some third country whose transactions will supply the means for bringing about this reciprocal extinguishment of obligations; for no country can, by the very conditions of trade, import that which its exports will not pay for.

This negotiation of bills of exchange is one of the earliest functions of a bank, and one which is always a principal aim in the establishment of a bank. But a bank has also other functions hardly less important in the economy of the precious metals. Gold and silver wear, and are liable to loss. The property which, as we have seen, gives a peculiar fitness to these articles as money, that of easy division and reunion, has its disadvantages. For example, it is difficult to identify money which has been stolen or fraudulently kept from its owner; and if the money has been melted, it becomes impossible to identify it at all. Now if some person can be found who may be trusted, and this person will take money and give in place of it either a power to withdraw the money at discretion by orders on him, or will give such a document to the depositor as entitles him to demand his money, the loss and risk will be obviated.

But this is not all. When the possessor of a sum of money puts that money into the hands of a banker, he does not stipulate to receive again the very coins which he had deposited, but their equivalents. In other words, he makes over his money to the banker, and takes in its place a security, which is worth all his money, and has some conveniences which his money has not. The banker lends this money, for he knows that all the money that he