§ 1. The functions of money. § 2. The standard of deferred payments. § 3. Property. § 4. Wealth and property rights. § 5. Origin of capital; its definition. § 6. Capitalization of direct durative agents. § 7. Capitalization of indirect durative agents. § 8. Time-price without loans. § 9. Present price and the discount on future uses.

§ 1. The functions of money. As trade among a number of traders is greatly facilitated and price is given a more exact expression when a common objective standard, money, comes into use, so a price paid for time-transfers of many kinds can be much better expressed in a common standard by the use of money.

Money is first a means of trade, a medium of exchange. (For preliminary definition, see above, Chapter 7.) It is some object which has value to all men and which, because of its convenience, comes to have the most general marketability of any good. It is thus selected because of certain qualities in which it excels any other good. It is always some object containing, in the view of every one, a good deal of value in small bulk, most easily kept without physical decay, and that has come, as markets develop, to be one of the goods in most trades.

The general medium of exchange is necessarily the most general price-good. As all other things are constantly exchanged for money, they can each in turn be compared with all the others in terms of money. It becomes the common denominator of prices. The price of any one thing in terms of another can be found from the money-prices of the two.

This permits and cultivates habits of exacter conscious calculation of prices both by buyers and sellers than were before possible.

Whenever money is kept for an hour or a day, awaiting the fitting moment to complete the double exchange, it is serving the purpose of a storehouse of saving. Because of the same qualities that make it generally exchangeable (certainty of sale and physical durability) it is one of the best objects to keep for longer periods (to be saved, hoarded) against a day of need. It is a generalized means of abstinence, kept for a general purpose without choice as yet of the particular good for which it will be spent. The use of money as a storehouse . of saving was more common formerly than it is now, for in advanced countries better ways than the hoarding of money are found for "laying up for a rainy day." In some measure, however, even here money serves this use and in large parts of the world as in Egypt, China, India, this use is of very great importance. A thing ceases to be money, logically viewed, the moment its owner keeps it without the purpose that it shall be spent ultimately. The typical miser is a man who has lost his reason as regards the money use, has forgotten that it is a means to an end. Whether serving as a storehouse of saving or as a medium of exchange, in either case money is to be kept only till the moment when the owner believes it will best gratify his desires. Its use thus even as a medium of exchange involves a recognition, and a more or less conscious calculation, of time-value.

§ 2. The standard of deferred payments. But this connection with time-value is yet more important as money comes to be used more and more as a standard of deferred payments, a standard for prices over a period of time. A deferred payment is a payment made in fulfilment of a bargain made for goods delivered at an earlier date. It is the completion of a credit transaction. Credit means, first, trust or confidence reposed by a seller in a buyer, and hence the selling of things " on trust," in exchange for a promise of pay at a later date.

Now as money is the common price denominator, and the price of nearly all things whether they are sold for cash or on credit is expressed in money, it is the unit in which the comparison of goods is made when one chooses goods in different periods of time. It is not an absolute standard of value; a "dollar" is not necessarily of the same value-magnitude to any one person from year to year, much less to all persons together. Money is subject to fluctuations of its own (for example, those due to changes in gold production) having remarkable consequences in industry which must be separately studied. But money is taken as the objective standard in borrowing and lending to which the time-preferences of men are adjusted, as value is adjusted to price. This is to be treated under the subject of interest.

§ 3. Property. No trade of goods is possible unless the trader has possession of the goods, or can deliver that control over to the other party in the trade. The fact of possession is implied in all discussions of value, price, use, and rent. Possession is a legal fact. It is legal control, not physical hold of goods. In any settled community it must be regulated by law, the law of property. Property is ownership. It is an intangible right; only by a loose figure of speech has it come to be applied to the object owned (e.g., a man has a property in a house and lot - real estate; hence the house and lot are called his property). The law of property is the rule of the community determining control over economic goods. Economic goods are valuable; other persons would like to have them. A property right is either a claim upon some one else or a limitation of some one else's claim. You say in various ways, this house with land is mine, it is my own, it is owned by me, it is my property, I have a property right in it, it belongs to me, etc. All these phrases express your right to have and use as against other men's rights. But you may sell to another man a right to a method of use or to a limited period of use, in a written instrument, a lease. He then has a legal right in his leasehold, and your right is limited by his.

He may have an "equity" in the house (a claim upon the income from the house which formerly was enforceable in a court of equity). At the same time you may get repairs made by mechanics who until paid have a legal claim for which the house itself is legal security (law of mechanics' lien). And so there may be a score of overlapping and mutually limiting claims upon the income from one economic agent. There is a legal distinction between your legal claim to the fee simple of a landed estate, and the various legal claims upon you, or equitable interests in the house (when it is the security). But it is property rights that are traded rather than the things themselves, for legally each party in a trade can deliver the possession and use only of that limited part, aspect, or mode of use, of goods, which is his.

§ 4. Wealth and property rights. The valuable objects themselves, such as lands, houses, cattle, implements, and ships, are wealth. If there are no overlapping legal rights, the property right to a piece of wealth has the value of the wealth itself. In simple conditions of industry each piece of wealth had one owner who had the right to all the income of that wealth; or if others had overlapping claims (of landlord, sovereign, etc.), they were of a fixed sort, not objects of sale. Neither the objects of wealth (the lands, etc.) nor outsiders' claims upon them were ordinarily bought and sold. Therefore their magnitude was usually estimated in terms of their rents, or incomes, and not in terms of their price if sold as a whole. In England, where land rarely changes hands except by inheritance, an income whether from land or other sources is still spoken of as worth so many pounds a year, rather than as worth so much as a whole. As there comes to be a network of property rights extending over the wealth, and mutually delimiting each other, it is evident that the total price of these rights can not exceed the total price of the uses (products) of the wealth. The different pieces of wealth have yields that are impersonal - the field yields its crop, the house its services, the ship its uses, and these impersonal yields are apportioned to different persons as incomes according to their property rights. Two or more men may be partners, one entitled to 1/2, another to 1/3 and another to 1/6 of the total usance; or before these incomes are apportioned, many other small prior claims may be first deducted. Corporate ownership with small shares of stock gives a much greater division of claims upon income.

More and more it is these claims to income that have come to be the objects of trade among men, rather than the concrete wealth itself. One may be a very rich man to-day and not own outright, in fee simple, any but small personal belongings. He does not own wealth in the old-fashioned way, he has capital, and is a capitalist.