The of Utilities sons make little or no present sacrifices as a condition to securing command over purchasing power. Nor is it true of consumers who receive interest for capital they have accumulated, not in order that they may secure interest, but in deference to one or more of the other motives that have been described. Such consumers also make no present sacrifice in return for the purchasing power they receive. Nor is it true of workmen who find their work a pleasure and whose hours are fixed not by calculations of marginal disutility which they themselves make, but by standards determined by the weaker members of the industrial groups to which they belong. It is true, however, of capitalists who are just induced by the promise of the current rate of interest to save and invest in preference to spending. Such men balance the marginal utilities of the goods which the interest will enable them to command against the marginal disutility of deferring consumption. It is also true of the marginal workmen in each group who determine by their calculations the length of the workday for their class. For them the marginal disutility of the final hour's labor is a painful reality which they balance in their minds against the added goods which the pay for this last hour enables them to command. If the balance is on the negative side they are ripe for a strike for a shorter workday, and if their feelings are the feelings of their group they are likely to secure it. Besides the calculations which determine the accumulation Balancing of capital and the length of the normal workday, there are others which fix standards of living and through them inDisutilities, fluence the rate at which the working population increases. Against To maintain wages men in different industrial groups incur the sacrifices involved in a postponement of marriage or restriction of births after marriage, and in the long run these sacrifices are compensated, and only just compensated, so far as the standard of living controls wages, by the higher earnings which such conduct insures to the class benefited. A full analysis of the motives that enter into the balancing *For example, many a mechanic who limits his work to eight hours a day, would gladly work an additional hour for proportionate pay. but is prevented from so doing by loyalty to the rule of his union. of utilities and disutilities in industrial society, and of the equilibrium that results from them, belongs to a more advanced treatise on economics. In actual progressive societies changes occur so frequently that an exact balancing is something constantly aimed at, but never secured. In men's efforts to realize it, the ultimate determinants of value and distribution are, however, to be sought. REFERENCES FOR COLLATERAL READING * Mayo-Smith, Statistics and Sociology, Book I., Chaps. V., VI. and VII., and Statistics and Economics, Book I., Chap. V.; *Fetter, Principles of Economics, Chap. XLIII.; *Bullock, Selected Readings in Economics, Chap. IX.; *Clark, The Distribution of Wealth, Chap. XXIV.; *Marshall, Principles of Economics, Book IV., Chaps. IV. and VII., and Book VI., Chap. XI.; Böhm-Bawerk, The Ultimate Standard of Value (article in Annals of American Academy of Political and Social Science, Vol. V., pp. 149-208); *Taussig, Principles of Economics, Chaps. LII. and LIII. The Dis of Barter. CHAPTER XIX MONEY AND THE MONETARY SYSTEM OF THE UNITED STATES § 177. As has already been pointed out (Section 85) every advantages extension of coöperation and the division of labor, beyond the simple division of tasks possible within the family, must be accompanied by a corresponding development of the system of exchange. The simplest kind of exchange is barter; but this has serious drawbacks, since it can take place only when two traders come together, each having in his possession a commodity preferred by the other. Even this situation will not lead to an exchange unless the parties can agree as to the terms of the bargain. Thus, under the system of barter, the American Indian with a pony to dispose of had to wait until he met another Indian who wanted a pony and at the same time was able and willing to give for it a blanket or other commodity that he himself desired. Even when pony and blanket came together an exchange through barter might be prevented by the fact that one of the owners thought his commodity worth somewhat more than that of the other. Neither pony nor blanket could be divided without loss in value, and in consequence higgling over the trade would be quite as likely to lead to a quarrel as to a transfer of property. The Nature tions of Money. The inconveniences connected with barter led, at an early and Func- period in the history of civilization, to the introduction of a medium of exchange, or money. Although no exact account of the steps preceding this important innovation has been preserved, it is not difficult to reconstruct in imagination the circumstances which determined the choice of the medium of exchange and caused it gradually to come into general use. Inability to barter surplus products for the exact commodities desired must have suggested the feasibility of bartering them for other products that were in more general demand, more durable or for some other reason more exchangeable. Thus the owner of surplus game who was unable to get for it the arrow-heads he desired, would be glad to accept instead some durable ornament generally prized in the community, such as a string of beads. His chance of exchanging this for arrowheads would be excellent, and would certainly be preferred to the prospect of having his game spoil on his hands. In some such way commodities must have come to be distinguished, even in primitive communities, by reference to their exchangeability, and the most exchangeable commodities must gradually have come to be used as media of exchange. of Value. Quite as important as a medium of exchange to the de- Money a velopment of an industrial community is a standard, or com- Standard mon denominator, by means of which the values of commodities may be compared. Without such a standard the value ratio between each commodity and every other dealt in must be remembered by the trader. For example, if he deals in ten commodities there will be forty-five ratios of exchange to be remembered. The use of a standard of value enables him to substitute for these forty-five possible exchange ratios the nine ratios between the selected commodity and the others. The smaller number of ratios under the new system tell exactly the same story as the larger number did before. Thus, instead of remembering that a string of beads is worth four deer, that two deer are worth an arrow-head and that two arrow-heads are worth a string of beads, it suffices for the trader to remember that a deer is worth one-quarter, and an arrow-head one-half of a string of beads. To serve as a standard, or common denominator, of value is a second function of money, and to fulfil it, as to fulfil the first, the commodity selected for the purpose must possess in high degree the quality of exchangeability. In addition to serving as a medium of exchange and a Also of standard for comparing exchange values, money, or the mon- Deferred etary unit, serves in modern industrial communities as the Payments. medium for credit transactions, or deferred payments. Promises to pay in the future for value received in the present are habitually expressed in terms of money. To serve as a standard for deferred payments is thus money's third function. Prices and the Value of Money Vary Inversely. Stability of Value Necessary to a Good Money. Various § 178. Price, as already explained, is exchange value measured in terms of money. In the United States and other gold-standard countries prices express the value ratios between the commodities priced and gold. To say that a bushel of wheat is worth $1 is equivalent to saying that a bushel of wheat will exchange for 23.22 grains of pure gold, since this is the standard dollar of the country. If the price of wheat should rise to $1.25 (i. e., to 29.02 grains of pure gold), the value of gold measured in terms of wheat will have fallen correspondingly. One dollar, or 23.22 grains of gold, will now exchange for only four-fifths of a bushel of wheat. Thus every change in price registers a reciprocal change in the exchange value of gold measured in terms of the commodity priced. To determine whether any given change in prices was due to a change in the value of the commodity, or in the value of gold, the standard money, it would be necessary to make a general comparison in which all important commodities were included for the two periods. If it should be found through such a comparison that while the price of wheat rose other prices remained constant or fell, it might fairly be concluded that the value of gold had not fallen and that the change was due to a rise in the value of wheat. If, on the other hand, the comparison showed that the prices of all or nearly all commodities had risen together, as has been the case in recent years in the United States, the conclusion would necessarily be that the value of gold had fallen. Some writers describe money as the measure of values, but it is evident that as a measure it is not in the same class as a foot-rule or a bushel. It is a convenient standard for comparing values or a common denominator to which all values may be reduced; but as a measure of values in any absolute sense it is untrustworthy, since it is itself variable in value. This variability is a source of annoyance and loss to the business community, and hence stability of value is one of the qualities most essential to a good money. § 179. Present-day monetary systems are the result of an historical evolution. In the past, in different countries, nearly every kind of commodity has served as money. The ox is as Money. the standard of value referred to in the earliest literature ties Have Served |