§ 7. Varying extent of the use of money. Trade by the use of money at no time has become the exclusive method. Barter still lingers to-day.4 The extent to which, on an average, money is used in different parts of the world differs widely. The use of money in Siberia is less than in European Russia, and its use is less there than in western Europe. The use of money as compared with barter is generally much greater in the cities than in the rural districts. In the cities of Mexico not only money but banks and credit agencies are in general use; whereas the rural districts are more backward and make far more use of barter than is the case in the United States. At the ports in the cities of China, India, and South America the use of money may be very like that in European cities; but go a little way into the interior of these countries, and conditions as to the use of money change greatly.

However, the comparative per capita amounts of money (in terms of American dollars) in circulation in different countries is far from being a true index of their industrial development or of their commercial activity. Indeed, beyond a certain point the larger average amount of money in circulation in a country may indicate backwardness in the development of banks and other credit agencies rather than greater amount of wealth or of business. Notice, for example, the medium position of the great commercial countries, Germany and the United Kingdom, as compared with other countries above and below them in the following list.

4 See Vol, I, p. 43, on the decline of barter.

Per Capita Circulation of Money in Leading Countries

Per Capita Circulation of Money in Leading Countries

§ 8. Relative importance of money. Because money is the general expression of purchasing power, and comes to symbolize all other wealth, it often assumes undue and exaggerated importance in men's eyes. Money is but one of many forms of wealth. It constitutes but a small percentage of the total wealth of a country, and it is far from being the most indispensable to human welfare. Yet its importance, as a whole, in determining the form of industrial organization is enormous. In a society without money industrial processes would be very different, and trade would be hampered in manifold ways.

5 These figures for a year just before the outbreak of the World War are in terms of the American gold standard dollar, and are retained here as indicating much better than later statistics what may be deemed the "normal" situation, in those countries that had the gold or silver standards at that time.

The immense issues of paper money in many of these countries since 1914, as well as the changed value of gold, has quite altered the present status of the monetary stocks.

If a poor community has relatively little money it is because it cannot afford more; it gets along with less money than is convenient, just as it gets along with fewer agents of every other kind than it could use. Pioneers in a poor community where the average wealth is low cannot afford to keep a large number of wagons, plows, good roads, or schoolhouses. If the members of the community were wealthy enough each would have more of these and of other things, and the sum total of money would be greater. Great as is the convenience of money, poorer communities have to do with little of it. It is, therefore, a confusion of cause and effect when poor communities imagine that their poverty is due to the small amount of money in circulation.

Many of the most common errors in economics are the result of confusion as to the real nature and place of money. The word "money" is so often used, in a figurative sense, for any or all of the goods for which it may be exchanged, that men forget that it is often a mere symbol of wealth and not the wealth itself. To give only two illustrations out of many that could be given: In relation to foreign trade, men continually speak of bringing money into the country, or of sending our money abroad, when in neither case, probably, has any money moved in the direction indicated. Again, in reference to the interest rate or to the causes of business crises, men speak of money being more plentiful or less plentiful, when the amount of money has either not changed or has changed in the contrary direction, and what is really meant is that some change has occurred in credit conditions. So persistent is this idea that there is hardly an economic problem in which this characteristic monetary illusion does not serve to mislead popular opinion. The safest course for the student is to assume always that any explanation of processes of production or of trade in terms of money is superficial, and that the real forces and reasons are to be found only by penetrating more deeply into the situation.

§ 9. Standard-commodity money. The actual money in use in almost every country to-day consists of a wide and confusing variety: gold, silver, nickel, copper, paper in various forms, issued by various authorities under various conditions as to amount and as to seigniorage. But, among all the kinds, in each country some one kind is found standing preeminent and in a peculiar position as the standard money to which the value of all the other kinds of money is in some manner adjusted. Usually this standard money is composed of a material (gold or silver) that is a commodity; but there are many examples of paper money being for the time the standard. We mean by standard money that kind, no matter what its form, which serves in any country as the unit in which the value of other kinds of money is expressed. The standard usually is a quantity of metal, of a certain weight and fineness, which, as a commodity, has a value also in industrial uses. Coins of this standard are called full, or real, money by some writers who deny the title of money to everything else. Sometimes the standard may legally be a double one, as in bimetallism, both gold and silver; but in such cases it actually is either gold or silver most of the time.

The difficulties of the money problem must be attacked at the point of standard-commodity money, where it is nearest to ordinary value problems and is less complicated than when the various other kinds of money and the various money substitutes are included.

§ 10. Commodity money without coinage. Let us consider the problem of money and its value as it would present itself if only one kind of commodity money were in use. This doubtless was in large measure, if not entirely, the case for a time in early societies after one material had proved itself to be the best suited for the purpose. The history of many kinds of money may, we have seen, be traced back to a point where they were not money, but commodities with only a direct value-in-use. Such were ornaments, shells, furs, feathers, salt, cattle, fish, game, and tobacco. Each of these materials has, in each situation, a value that is the reflection of its power to appeal to choice. Now, if to the commodity-use is added the monetary use, this increases the demand for that good. No new theory is required to explain the value of a commodity as it gradually acquires the added use of a medium of trade. The money use is one that works no physical or visible change in goods except a slight unavoidable abrasion, and at any time a person receiving a piece of commodity money may retain it for its use-value as food, ornament, tool, or weapon, or may retain it for a time and then spend it as money. This case of value is no more difficult than that of anything else having two or more uses. For example, cattle are used for milk, for meat, and as beasts of burden. Each of these uses is logically independent as a cause of value, yet all are mutually related, the value of cattle to a particular person being determined by the consideration of all the uses united into one scale of varying gratification.

In antiquity the metals were used as money in bulk; that is, the amount was weighed at each transaction and the quality was tested whenever there was doubt.6 In countries industrially backward, payments are still made in this manner. For some time after the discovery of gold in Calfornia, gold dust was roughly measured out on the thumb-nail. In shipments of gold to-day by bankers to settle international balances, metal may be in the form of bars that bear the mark of some well-known banking house. In all of the cases of this kind the gold is money in fact, but not by virtue of any act of government. The metal is simply a valuable good, the receiver of which values it according to its weight and fineness. This is true even when the government mint, for a small charge, tests and stamps the bars at the request of citizens.

• "I will refine them as silver is refined, and will try them as gold is tried." (Zech. xiii, 9.) "I bought the field, and weighed him the money, even seventeen shekels of silver. And I weighed him the money in the balances." (Jer. xxxii, 9, 10.) A shekel was 224 grains, troy weight, which is about equal to six tenths of the pure metal in a silver dollar to-day, and worth in recent years from twenty to sixty cents in gold. At that time, however, the purchasing power of silver was many times greater than it now is.

§11. The money-material in its commodity uses. In the case of a commodity-money, such as gold, the problem of its value as bullion is the same as that of the value of pig iron or of zinc, of meat or of potatoes. The value of gold as bullion and its value as money are kept in equilibrium by choice and by substitution. The several uses of gold are constantly competing for it: its uses for rings, pens, ornaments, championship cups, photography, dentistry, delicate instruments, and as a circulating medium. If the metal becomes worth more in any one use, its amount is increased there and is correspondingly diminished in other uses.7

This adjustment of the value of commodity-money to other things is made also on the side of supply, in the use of labor and material agents to produce the precious metals and to produce other things. Gold-mining, for example, is one among various industries to which men may apply their labor and their available material agents. Some mines are superior, others medium, others marginal which it barely pays to work. There is, therefore, a rise and fall of the margin of gold production, with changes in prices and changes in the cost of production. Large new deposits of gold are discovered from time to time, and new methods of extracting gold are invented. If, when it barely pays to work a mine, such changes occur, gold becomes worth less, and the poorer mines eventually must go out of use. As gold rises in value some abandoned mines again come into use. A similar variation may be noted in the utilization of marginal land, marginal factories, marginal forges, and marginal agents of every kind.8

7 See § 1 and § 2 of this chapter; also Vol. I, especially pp. 31-38 and 353-355.

8 See Vol. I, pp. 138 ff. and 361 ff.

References

Jevons, W. S., Money and the mechanism of exchange. N. Y. Appleton. 1875. Chs. III-VII, XIII. Johnson, J. F., Money and currency. N. Y. Ginn & Co. 1905.

Chs. I, II, IX. Phillips, C. A. (Ed.), Readings in money and banking. N. Y. Macmillan. 1916. Chs. I - III, XIV. Walker, F. A., Money in its relations to trade and industry. 1st ed.

N. Y. Holt. 1879. Chs. I, II. White, Horace, Money and banking illustrated by American history.

Ed. Bost. Ginn & Co. 1914. Bk. I.