B. Money Economy

113. A PECUNIARY SOCIETY1

Modern society is, then, distinctly a pecuniary society, a society of business. Despite the fact that society was not always pecuniary -has, indeed, been so only for the narrowest margin of years out of a long human history, and may remain so only for the next short swing of the pendulum in the life of man-the political economy that we must study today is the political economy of today. Mainly, under present conditions, we produce for the market, for exchange, despite the fact that a few generations ago the contrary was the truth. And at present we produce in the larger part for a competitive, impersonal world-market. This is the era of free individual initiative under private property for private gain. So far, indeed, is this the truth that even combination and monopoly may be regarded as merely secondary aspects of competition and of individual initiative. Strike this fact of competition at its very center of tone, and we discover that we are in a régime of price. Money is the focusing point of modern business affairs. It is the standard of values simply because in a society producing for exchange it is the one established intermediate commodity. Therefore, as medium of exchange, it is the standard of immediate and of deferred payments. Through credit, the money economy lays hold upon even the distant future. Thus to object that more and more, as society has advanced from a society of isolated production through a barter economy to a money economy, it is now moving over into a credit economy, is really to assert merely that in new and marvelous ways money is taking on a still greater emphasis. More and more, and more and more exclusively, and over an everwidening field of human effort, human interests and desires and ambitions fall under the common denominator of money. Doubtless many of the best things in life do not get bought and sold. Some of them are not exchangeable; and not all things that could be transferred are men weak enough to sell or other men strong enough to buy. Not every man has his money price. But most good things do, in greater or less degree, submit to the money appraisal. Health is easier for him who can take his ease and who has the wherewithal to pay for good foods and medicines, to travel,

Taken by permission from H. J. Davenport, Economics of Enterprise, pp. 21-28. (The Macmillan Co., 1913.)

to employ good nursing, and to command capable physicians and efficient surgeons. And, in their degree, also, love and pity and respect and place are bought and sold upon the market. It takes a goodly number of dollars to get a child safely born, and even more dollars to achieve for one's self a respectable burial. Much money is power over many things. Money is the standard of value in the sense that all values of all exchangeable things are expressed in terms of it. And this holds, not only of all commodities and services, but of all incomes and of all capitals. The capital of a banking house, or a factory, or a railroad company is not a congeries of tangible things, but a pecuniary magnitude-so many dollars. All economic comparisons are made in money terms, not in terms of subsistence or of beauty or of artistic merit or of moral deserving. This same standard tends to become also the test and measure of human achievement. Men engage in business, not solely to earn a livelihood, but to win a fortune in a pecuniary sense. To win by this money test is to certify one's self tangibly and demonstrably as having scored in the most widespread and absorbing of competitions. Is one a great artist-what do his pictures sell for? Or what is the income of this leading advocate? or of that famous singer? How great are the author's royalties? The pecuniary standard tends to be carried over into non-pecuniary fields.

It is almost past belief how far both in degree and in direction money valuations pervade all our thinking. Cheapness is prone to be synonymous with ugliness, richness with beauty, elegance with expensiveness. No one can tell for himself where the really aesthetic begins and the sheer pecuniary ends. In the field of morals, also, the so-called cash-register conscience is an actual thing. And one might go still further and note that almost all great political issues, and almost all absorbing social problems, and almost all international complications rest upon a pecuniary basis. Our national problems are tariff, labor unions, strikes, money, trusts, banking, currency, railroads, conservation of resources, shipping, taxation. Success in elections, in the selection of senators, in the making of laws, and in the selection of judges is prone to be desired for financial ends and to be decided by pecuniary means. Diplomatic complications hinge upon trade connections, the open door, fisheries and sealeries, colonies for markets, and spheres of influence for trade. Navies are trade guardians and trade auxiliaries. Eliminate from local politics the influence of the public

service corporation, of the contractor, and of the seekers for special pecuniary privileges, and what is left of the municipal problem will be mostly the pecuniary nexus of the slum with the ballot box, of the saloon with the police system, and of saloon and slum and brothel with the city hall.

It is, in fact, the value problem-or more specifically and more accurately for present society the problem of market price-that is the central and unifying problem of present-day economics. Price, then, must attend and characterize all things that are economic; and all things so attended are so far economic in character. And more things than those which accurately are material must fall within the scope of price. Price extends its sway to the utmost limits of whatever is property, tangible or intangible—whether material or immaterial. Property covers-and therefore price covers-debts, good will, franchises-everything that is bought or sold. Price includes also many non-property facts-human services, such as the goods for which payment is made to the actor, preacher, teacher, or singer. In the fact that anything sells at all in the present economic order is implied its sale in terms of price. Wages, for example, are the price of the services of employed labor; profit, the price-reward of the independent, self-employed laborer (the entrepreneur, enterpriser, Unternehmer, or imprenditor); rent, the price commanded by property lent in time for hire; interest, the per cent which the time-use of wealth, in terms of price, bears to the total price. Each of these is a price quantity or item, and each presents itself specifically as a problem of price adjustment.

See also 88. The Meaning of Exchange.

114. THE SHORTCOMINGS OF BARTER'

The first difficulty in barter is to find two persons whose disposable possessions mutually suit each other's wants. There may be many people wanting, and many possessing those things wanted; but to allow of an act of barter, there must be double coincidence, which will rarely happen. A hunter having returned from a successful chase has plenty of game, and may want arms and ammunition to renew the chase. But those who have arms may happen to be well supplied with game, so that no direct exchange is possible. Sellers

Adapted by permission from W. S. Jevons, Money and the Mechanism of Exchange, pp. 3-6. (D. Appleton & Co., 1898.)

and purchasers can only be made to fit by the use of some commodity which all are willing to receive for a time, so that what is obtained by sale in one case, may be used in purchase in another. This common commodity is called a medium of exchange, because it forms a third or intermediate term in all acts of commerce.

A second difficulty arises in barter. At what rate is any exchange to be made? If a certain quantity of beef be given for a certain quantity of corn, and in like manner corn be exchanged for cheese, and cheese for eggs, and eggs for flax, and so on, still the question will arise-How much beef for how much flax, or how much of any one commodity for a given quantity of another? In a state of barter the. price-current list would be a most complicated document, for each commodity would have to be quoted in terms of every other commodity or else complicated rule-of-three sums would become necessary. Between one hundred articles there must exist no less than 4,950 possible ratios of exchange, and all these ratios must be carefully adjusted so as to be consistent with each other, else the acute trader will be able to profit by buying from some and selling to others.

All such trouble is avoided if any one commodity be chosen and its ratio of exchange with each other commodity be quoted. Knowing how much corn is to be bought for a pound of silver, and also how much flax for the same quantity of silver, we learn without further trouble how much corn exchanges for so much flax. The chosen commodity becomes a common denominator or common measure of value, in terms of which we estimate the values of all other goods, so that their values become capable of the most easy comparison.

A third, but it may be a minor, inconvenience of barter arises from the impossibility of dividing many kinds of goods. A store of corn, a bag of gold dust, a carcass of meat, may be portioned out, and more or less may be given in exchange for what is wanted. But the tailor, as we are reminded in several treatises on political economy, may have a coat ready to exchange, but it much exceeds in value the bread which he wishes to get from the baker or the meat from the butcher. He cannot cut the coat up without destroying the value of his handiwork. It is obvious that he needs some medium of exchange into which he can temporarily convert the coat, so that he may give a part of its value for bread, and other parts for meat, fuel, and daily necessaries, retaining perhaps a portion for future use. Further illustration is needless; for it is obvious that we need a means of dividing and distributing value according to our varying requirements.

115. THE EXCHANGE FUNCTIONS OF MONEY1 Money performs two distinct functions of high importance, acting as (1) a medium of exchange, (2) a common measure of value.

In its first form money is simply any commodity esteemed by all persons-any article of food, clothing, or ornament which any person will readily receive, and which, therefore, every person desires to have by him in greater or less quantity, in order that he may have the means of procuring necessaries of life at any time. Although many commodities may be capable of performing this function of a medium more or less perfectly, some one article will usually be selected, as money par excellence, by custom or the force of circumstances. This article will then begin to be used as a measure of value. Being accustomed to exchange things frequently for sums of money, people learn the value of other articles in terms of money, so that all exchanges will most readily be calculated and adjusted by comparison of the money values of the things exchanged.

A third function of money soon develops itself. Commerce cannot advance far before people begin to borrow and lend, and debts of various origin are contracted. It is in some cases usual, indeed, to restore the very same article which was borrowed, and in almost every case it would be possible to pay back in the same kind of commodity. If corn be borrowed, corn might be paid back, with interest in corn; but the lender will often not wish to have things returned to him at an uncertain time, when he does not much need them, or when their value is unusually low. A borrower, too, may need several different kinds of articles, which he is not likely to obtain from one person; hence arises the convenience of borrowing and lending in one generally recognized commodity, of which the value varies little. Every person making a contract by which he will receive something at a future day will prefer to secure the receipt of a commodity likely to be as valuable then as now. This commodity will usually be the current money, and it will thus come to perform the function of a standard of value. We must not suppose that the substance serving as a standard of value is really invariable in value, but merely that it is chosen as that measure by which the value of future payments is to be regulated.

It is worthy of inquiry whether money does not also serve a fourth distinct purpose that of embodying value in a convenient form for conveyance to distant places.

Adapted by permission from W. S. Jevons, Money and the Mechanism of Exchange, pp. 13-17. (D. Appleton & Co., 1898.)