We have discussed the principles upon which exchanges are made. We now come to consider the instruments by which they are effected.

These are of three kinds: —

1st, Barter.

2d, A common medium, or currency.

3d, Different forms of credit.

No person produces every thing he wishes to consume. Even in the savage state, men will obtain different products, as they have skill and opportunity. These they will exchange among themselves in kind.

As the civilized state appears, the necessity for interchange of commodities increases. Every mechanic must exchange his products with every other mechanic, and all these with the agriculturist and fisherman; so that exchange becomes one of the greatest departments of human industry. But, under these circumstances, barter, or exchange in kind, becomes a very inconvenient and clumsy mode of effecting the desired object. For example, the farmer may wish to exchange wheat for a hat; but the hatter is already supplied: what, then, will the hatter accept? A table. The farmer must then go to the cabinet-maker, and offer his wheat for a table. But the cabinet-maker is supplied with wheat. He would, however, accept a pair of boots. The farmer applies to the boot-maker, who happens to wish for wheat and accepts the offer. With the boots the farmer gets the table, and with the table gets the hat which he desired.

In such a state of things, this was the only process by which exchanges could be effected; circuitous, and expensive in time and labor, as it was.

We might have supposed a far more difficult case; but this is sufficient to illustrate the inconvenience of barter, or the direct exchange of commodities. But there is still another difficulty, of scarcely less magnitude. When articles to be exchanged became numerous, it would be found a very intricate matter to establish satisfactorily the relative value of each. For example, how many sheep shall be given for a cow? How many cows for a horse? How much corn for a bushel of wheat? How much butter for a gallon of molasses? How many eggs for a pound of tea, sugar, or coffee? How many of any or all of these for a cart, plough, spade, chair, table, &c., through an interminable series of exchanges?

Under such circumstances, there could be no such thing as price, because there would be no common standard, to which the value of all articles could be referred.

What, then, was wanted? Evidently, some article which all persons, either by common consent or the force of law, shall accept for whatever they have to sell, and by which they will measure the value of any thing sold.

That article would perform two important functions; viz., it would be an instrument of exchange, and a standard of value: in other words, it would be money.

We learn the true nature of money, then, from its origin and the functions it performs. These offices or functions we must examine in detail.

1st, As a medium of exchange. This may be wholly conventional. Any thing, which, by general consent or in obedience to law, all receive in exchange, will answer the purpose. So far as this function is concerned, it is of no consequence whether the article has value or not: safety and convenience are the only considerations of importance.

Money, in this respect, is simply a counter, token, or universal equivalent.

2d, As a standard of value. Value is not conventional. It attaches to all objects which are desired, but cannot be had without effort or labor. Since the value of any thing is its power in exchange, we say that nothing is valuable which will not command labor, or that which costs labor.

Value implies comparison, appropriation, estimation, measure. In order that two things should measure each other, it is necessary that they be commensurable; and, in order to that, they must be of the same kind." — Bastiat.

Therefore, if we would measure value, we must use an article that has value in it. The measure must evidently have the same quality as the thing to be measured,— weight to measure weight, length to measure length, volume to measure volume, value to measure value.

The standard must be as nearly invariable as possible. An absolutely invariable standard is unattainable, because the standard itself must be subject to the same laws as the objects to be measured; that is, cost of production, supply and demand, &c.