CHAPTER II. On Money.

The Functions of Money. In the last chapter the inconvenience of a system of barter was described, and it was stated that the necessity of this system of exchange has been obviated in all civilised countries by the use of money. This is to say, that a substance has been selected by which to measure the value of all other substances, and also to serve as a medium of exchange. If a substance had not thus been selected as a measure of value, there would be no means of stating what the wealth of an individual was, but by repeating a catalogue of all his possessions. Thus, if it were asked what the national revenue of a country like England was, it would be almost impossible to give a reply, if it were necessary to enumerate all the articles which the nation possessed. It would also be very difficult to say how much wealth an individual possessed if there were not a measure of value. It would, for instance, be necessary, in stating the wealth of a rich nobleman, to enumerate the number and height of the trees on his estates, the amount and description of furniture in his houses, the number of horses, carriages, &c., that he possessed it would take weeks to make an inventory of his possessions; and after all a perusal of it would afford no definite notion of his wealth.

This disadvantage is obviated by the use of money, for the wealth of individuals and nations is now measured by the standard of the precious metals, and is said to be so many thousand or so many million pounds.

The convenience of the use of money as a medium of exchange has already been dwelt upon, when the nature of barter was explained. It was then stated that a country can never reach a great commercial position until

barter is superseded by the use of some more convenient method of exchange.

It is evident that the substance selected as money must be easy to carry about. A system of barter would hardly be more prejudicial to the interests of commerce than the use of a substance as money-such as wood, or iron-which does not contain great value in small bulk. If such a substance were used as money it would be necessary, when making even small purchases, to be followed by a horse and cart carrying one's money. These considerations prove that it does not necessarily happen that the substance selected as money should be either gold or silver; these commodities have usually been chosen in civilised countries because they possess in a peculiar degree the combination of qualities desirable in any substance acting as a measure of value and as a medium of exchange.

Various Substances have been used in different Countries as Money. Though gold and silver have been generally selected as the substances best fitted to be used as money, yet some countries have used other commodities in the same capacity. The Chinese formerly used pressed cubes of tea; some African tribes use a particular sort of shells; the ancient Arabs used cattle; salt has also been used as money in Abyssinia: and hides and dressed leather in other countries. But it may perhaps be stated, that experience has proved that gold and silver more perfectly fulfil the functions of money than any other substances. For it must be remembered that the substance selected as money must serve as :

Ist. A general standard of value.

2nd. A general medium of exchange.

The Substance selected as Money should possess Three Qualities.

Ist. Its value should be as uniform as possible.

2nd. It should be a substance which is generally prized. 3rd. It should possess great value in small bulk.

It is easy to perceive that the first of these qualities, viz. uniformity of value, is of great importance with regard to the first function of money, i. e. to act as a general standard of value. It is impossible from the nature of things that there should be any absolutely invariable standard of value. It was one of the economic schemes originated by Robert Owen to make labour the standard of value, and to enact that a fixed and uniform value should always attach to an hour's labour. It is obvious, however, that the value of labour is more variable than almost anything else that could have been thought of; and that there is no reason either in justice or commonsense why an hour's labour from such a man as Sir Joshua Reynolds should exchange at an equal value for an hour's labour of the man who blacked his shoes. Owen's Labour Exchange which had a short-lived popularity in the year 1832 was soon broken up through its inherent error of valuing all labour alike.

All substances known to us are liable to variations in their value. The utmost that can be obtained, therefore, in the substance selected as money is that the variations in value should be slight and gradual. If the value of the substance selected as money fluctuated very rapidly, the terms of every monetary contract would be disturbed. Suppose, for instance, wheat was selected as a general standard of value; in this case if A borrowed 10,000 qrs. of wheat from B, promising to pay him at the end of 6 months, when the time to pay arrived the value of wheat might have increased or decreased, owing to quite unforeseen circumstances, as much as 20 or 30 per cent. If the value of wheat had increased 30 per cent. A would virtually have to repay to B 30 per cent. more than he borrowed; because the same quantity of wheat would

exchange for 30 per cent. more wealth than it would have done 6 months before. If, therefore, the value of the substance selected as money were subject to sudden fluctuations, every commercial transaction would be reduced to a gambling speculation; for no one could with certainty foretell what the value of money would be in a few months' time.

The value of Gold and Silver varies less than that of almost any commodities which also possess the other characteristics which qualify a substance to fulfil the functions of money.

The second quality which money should possess is that it should have an intrinsic value of its own. That is, that it should be valued for its own sake, and not merely in its capacity as a measure of value and medium of exchange. If money were not composed of a material which is generally prized, it would not be universally accepted in exchange for commodities. Thus, for instance, the cowrie shells, formerly used as money by an African tribe, would never have been accepted by other people as a medium of exchange; because the shells would not be valued for their intrinsic worth, but simply for their exchange power, and this exchange power did not exist except in one particular locality. From various causes gold and silver have always been greatly valued, even in the most barbarous countries and in the most remote ages of antiquity. Their brilliancy, great durability, and malleability, have caused them to be much prized for the purposes of decoration and ornament in all ages and among all nations. For these reasons gold and silver possess in an eminent degree the second of those qualities which ought to characterize the substance selected as a measure of value and as a medium of exchange.

The third quality which money should possess, viz.

great value in small bulk, has already been alluded to. The fact that gold and silver fulfil this condition in various degrees, is manifest. The difficulty of procuring gold and silver, their consequent rarity, and the fact that they are universally prized, contribute to enhance their value. There are other substances, such as diamonds and other precious stones, which contain a very far greater value in a much smaller bulk; but diamonds would be a most inconvenient substitute for money; a diamond the size of a pin's head would be worth from 20s. to 30s., and the inconvenience of handling such small objects and the danger of losing them would be insuperable obstacles to using diamonds as money instead of gold and silver. There are other objections to the use of precious stones as money; they could not be coined; if they were divided their value would be diminished, for a diamond the size of a pea is far more valuable than ten diamonds each of which is the size of one-tenth of a pea. It is therefore evident that though the substance selected as money should contain great value in small bulk, the difference between the bulk and the value of the substance should not go beyond a certain point. Gold would be extremely unfit to make small payments with. A piece of gold of the value of sixpence would be almost as inconvenient a substitute for a silver sixpence as a diamond would be for a sovereign. In the same manner silver could not take the place of our copper coinage. In India, where there is no gold coinage, the inconvenience of carrying sufficient silver money for current expenses is very great, and leads many people to carry a cheque book instead of a purse, and pay for everything with cheques.

It is some

The meaning of a Double Standard of Value. times proposed that what is called a double standard of value should be adopted. The meaning of the ex