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WHAT IS MONEY?

STRANGE fatality seems to beset mankind of being unable to understand the nature and working of many things which are in most familiar use. They are handled or practised daily; their importance is most real, and often very great. They are incessantly spoken of, and errors respecting them may be most mischievous; nevertheless, from some cause exceedingly difficult to explore, what they are in themselves, and how it is that they are able to do the work for which they are used, few men only seem able to understand. Most persons can give no explanations of them either to themselves or others.

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Pre-eminent amongst these hopelessly unintelligible things is money. Let anyone ask the first man he meets, What is money?' What can be plainer? He will be told: Money is a thing to buy with sovereigns, shillings, francs, dollars are money.' Perfectly true, these things are money; only it is not quite answer enough. If a man were asked, 'What is a chisel?' would it suffice to say A thing to cut with'? A saw, too, cuts, and so does a knife. The chisel is not yet understood. Other things can buy besides coins-a piece of paper with writing on it, a promise, will often make a purchase as easily as a sovereign. If the inquirer has recourse to the language of the City, in the counting-house and the daily press, the puzzle will grow darker. He will find money said to be abundant or scarce, and yet there may not be an ounce more of gold and silver in the country. He will hear of it as dear or cheap, and yet not a particle more or less of any commodity in any shop or warehouse is being given in exchange for it. New senses of the word will be pressing in upon him from every side; mere lines in banking ledgers will be spoken of as money. Least of all will he hear any explanation of how it is-that money can buy. If he is told that a chisel is a piece of iron with a sharp edge of steel which is pushed against wood and so cuts it, he will obtain a very fair notion of what a chisel is, and of how it does its work. The important matter is to acquire the same information about money. When we know what money is made of, and with what it performs its work of buying, we shall have perceived the nature and the force of money-we shall have learnt what money is.

How then is it that money performs its function? How is it that it buys? Here we meet at once the fatal rock on which so many get shipwrecked. Who can answer the question which instantly arises: How is it that a sovereign buys a hat?' A man who cannot answer that question does not know what money is, nor in what consists its power of buying. If he casts his eyes around for aid to

to the grand authorities of the City. The great banker, the mighty merchant, think they know all about money; but instead of explaining, they are likely to meet such a question with indignation. The puzzle for them is too trying, judging at least from the answer which is almost universally given to it in banking and mercantile circles. The hatter, they tell us, takes the sovereign for his hat by 'consent.' But how is it taken by consent?-consent to what? The hatter, it is said, takes the sovereign because he knows that the umbrellamaker will consent to take it in turn. But why will he consent? upon what principle? The crucial point is, what assurance can the hatter feel that the umbrella-maker will give him an umbrella as good as the hat he is selling? What guarantee has he in the sovereign that he will consent to take it? Still more, what is meant by an umbrella as good as a hat? How is the goodness of both to be tested and ascertained? Not by consent, certainly, for consent makes its appearance only after the equal goodness has been discovered. The secret of money's action, of its power to buy, and the magnitude of that power, will never come forth from consent, most true though it be that everyone consents to sell for money.

If any further reasons were needed to show the extreme importance of acquiring true ideas on money, one has only to read the ardent discussions now carried on by eminent authorities on Bimetalism and the disordered state of the silver currency of India. Well would it be if each writer were summoned to prefix to his arguments a clear answer to each of the two questions, What is money?' and 'How is it that it buys?'

Amidst such confusion a clear, simple, and intelligible explanation of what money is, and of how it works, is most sorely needed. Great interests are at stake in a right conception of money. Bad money, unsound currency, inflict very heavy loss and great impediment to trade on both the nation and individuals, as the people of America have long felt, and have at last distinctly recognised. Let us then endeavour to put this needlessly and perversely entangled subject in a clear light, in the plainest words, so that all may easily understand. We shall be reproached, we are well aware, with uttering truisms, but that will not disturb us. Truisms are only obvious truths, and obvious truths are the greatest forces which act on the destinies of humanity. Only, in this fatal field of money, truisms are despised as not worth attending to; they are neglected by inquirers and writers. They are too poor, too familiar; they wear no look of knowledge and authority; they have a flavour of commonplace, but no feature of science; and thus dignified expounders of money invest it at once with an air of mystery, and, abandoning themselves to the most unrestricted licence of subtle but truthless theory, land the world in jargon and ignorance. We must try to pursue another method.

The first thing which presents itself to our mind when thinking of money is the fact of its universal use amongst all civilised nations.

some instrument for buying and selling, some contrivance for exchanging commodities, for enabling them to pass from the hands of one man to those of another. If a reason is asked for to explain this ever-felt necessity to have such a machine, a very common answer, not least amongst distinguished economists, points out the want which presses upon all men to procure a measure of value, a rule for comparing the worth of one commodity with that of another, such as the value of a sheep by the side of the value of a plough. Now, it is most certain that some method of measuring against one another the relative values of all things bought and sold is indispensable for all trade beyond the narrowest limits of the roughest barter; and money, beyond doubt, furnishes such a rule or measure which informs all men how much greater or smaller in the market is the worth of one commodity than that of another. Nevertheless, the absence of such a common measure of value would not have been the most formidable impediment to the development of trade. The measure does not make values; it only declares their magnitude. Money, as to valuing, is merely a register which records values. If no other difficulty had stood in the way, a vast expansion of trade might have existed by means of direct barter, in spite of the inconvenience, however serious, of there being no list, as it were, in which values were registered.

But a far more embarrassing obstacle barred the road to that exchange of goods which constitutes trade and lies at the root of civilisation. How were the men to be brought together who wanted each other's articles? How was the farmer to find a tailor who would give him a coat in exchange for a sheep or a sack of corn? How was he to get furniture from an upholsterer with a calf or a load of hay? The progress of human life would have been brought to a dead lock. Village life on a petty scale, upon the system of things made to order, would have been the inevitable fate of human beings. Some contrivance was imperiously called for to clear away the difficulty, and thus it happened that money was invented. It made its appearance at the very origin of the human race: savages bethought themselves of furs or skins to make trade, the exchange of goods, possible. Their instinct revealed to them the principle of money, the principle of all instruments of exchange. They saw that the only way to get over the perplexity was to select some article which everyone should be willing to take in exchange for the goods which he had to sell, and then with it to buy those particular things which he required for the supply of his wants. The path for trade was instantly cleared for the whole human race. Money was found for ever in the form of that primitive period, skins. Its essence and action were discovered for all time. Furs acted as an interposed commodity, as a go-between, between what a seller parted with and what he obtained in return; and this has been the nature of all money down to this very hour. The skins so employed were instruments for exchanging goods, and nothing else; and so are sovereigns and

The mighty machinery of division of employments was at once brought within the reach of the human race. Progress in civilisation was made possible. The hatter and the shoemaker could make hats and shoes for the whole town. The grocer could pile up stores in his shop for all. The manufacturer could weave cloth for the whole community. They all relied, and their confidence was not deceived, on their goods being bought with money, whatever that money happened to be, and on their being able in return to procure with it whatever they required. And here it was that consent came in for money, and still continues to come in. All the hunters took skins for their money by agreement: no law or force compelled them. The skins came naturally into use as convenient for all. And so it is now. No law forces any shopkeeper to sell his goods for coin. He may prefer barter. He may affix a leg of mutton as the price of one article, a pair of boots as that of another. But he consents to take sovereigns and shillings, and what he does everyone else does too. So also does the Government of the nation. It selects its form of money at its own pleasure, and every labourer and merchant adopts it.

But these wild Indians will tell us a great deal more. The furs which they applied to do the work of exchanging were useful articles obtained by great efforts and possessed of much value. They voluntarily chose to sacrifice all benefit of these furs as furs-they gave them up for the sake of one single service which they would now perform. They lost them as skins, they won them back simply as machinery for buying. Thus their instinct unconsciously taught them the very inmost essence of money-that it is a valuable commodity, and given in exchange, as such, for another equally valuable. Without knowing it, unconsciously they struck upon the great truth, first analysed and expounded by Aristotle (Pol. lib. 1. ix. 8): They agreed, for the purpose of exchanges, to give and take between themselves such an article as was itself a commodity.' This truth, thus found by Indian savages, is the vital principle, the essential substance of all true money, yet it is profoundly unknown to many eminent writers on money throughout the world. For them the Indians practised and Aristotle explained in vain. This very practice, too, of the Indians contains the reply to the question, which great bankers and powerful traders are unable to answer-how it is that a sovereign is able to buy a hat? The Indian fur bought, and still buys, because it possesses value: it is useful, is commodious, and can be exchanged for other useful things; and this is why it can act and buy as money. The fur can be worn and provide warm clothing; the seller knows this, and feels he has a guarantee that he is receiving what is worth the article that he is giving away. If he chooses, he can keep it as a commodity, as a fur for use. He then extinguishes it as money, which he loses, but he gains an article of clothing or ornament. It is precisely the same with the sovereign. It buys the hatter's hat by being a piece of gold. The hatter knows that it is made of gold, which is worth much and is perfectly sale

hat, and he puts the price of a pound upon the hat. It is the gold of the sovereign, whether coined or not, which buys the hat, precisely as it is the useful fur which buys the Indian's food.

I trust it may be allowed to repeat here an occurrence which throws the clearest light on the nature of the force which acts in a sovereign when playing the part of money. It furnishes instruction which it would be well if all would gather up. On a distant occasion the writer was leaving Switzerland, and paid his bill at his hotel at Geneva in sovereigns. That ended, the proprietor looked over the sovereigns carefully, and asked whether he might have a Victoria sovereign in the place of one of St. George and the Dragon, which had been given to him. He was asked why the one sovereign was preferred to the other. He replied that all the sovereigns would be melted on the next day, that the St. George sovereign was an old one, and would probably be a light sovereign, whilst the Victoria would have the full weight. Plainly it was the gold contained in the coins which paid the bill: what the hotel supplied was exchanged for gold.

We can now clearly understand the action of money it substitutes double for single barter. The hatter first barters his hat for a sovereign, and then he barters back the sovereign for an umbrella. Buying is always bartering the thing bought is bartered for a gold or silver coin. The difficulty of single bartering-that the seller does not want the article offered by the buyer -is got over. The hatter takes the sovereign, and with it purchases what he desires.

But we have not yet got to the bottom of the question: How does a sovereign buy a hat? Why a sovereign? Why not half a sovereign, or two? Because the hat is worth the sovereign, it is said the values of the hat and the sovereign are equal. Perfectly true; but this is not enough for the explanation we are in search of. What is meant by values being equal? It is easy to speak of values being equal or unequal when we have prices: what a thing will sell for becomes its market value. But here we are investigating what determines prices-why the price of the hat, its value, is not half a sovereign, nor two, but one. It is a very awkward and difficult matter to discover what it is that fixes values, what is the force which decrees that any article should be worth so much. The usual method is to put the article up for sale; then its price is ascertained, and we obtain its market value. But this process will not serve our purpose here, for we have not prices yet; we are seeking to learn what determines them-why, upon trial, the hat is found to be worth a sovereign exactly. Manifold feelings of the human mind come into play here. Taste, fashion, custom, effort, pleasantness, risk to life or property-these and many other sentiments influence the decision for each man, what he will ask to make a thing, or what he will be willing to give for it. This word 'value' has been a very annoying puzzle to the greatest economists; some have even