I

THE PECUNIARY ORGANIZATION OF SOCIETY

Introduction

Within the complicated structure of modern industrial society the institution of money is of supreme importance. Indeed, it is indispensable to the system of co-operative enterprise by means of which the wealth of the world is nowadays produced. Moreover, the more highly specialized the productive process becomes, the more important is the rôle assumed by money; though it should not be understood from this that money was unimportant before the industrial revolution and among the more primitive forms of organization. Practically speaking, from the very beginning of the division of labor and the exchange of commodities it has been of the greatest significance a conditioning factor at every step in the evolution of industry.

In beginning the study of money, therefore, it is necessary to consider first the various services or functions that it performs in connection with the everyday process of procuring the means of livelihood. These are set forth in the selected readings below under Section A, "The Nature and Functions of Money." It is important to bear in mind when studying these selections that the writers have a special point of view. They are endeavoring to analyze the working of economic forces, as the physicist analyzes the working of physical forces; and from this standpoint it appears to them unnecessary to attach any particular importance to the popular views on the subject of money and the influence that these exert in directing the daily activities of mankind. For the purpose in hand they need merely look upon economic society as a great and complicated structure or mechanism and endeavor to ascertain and describe the part that money plays in such a system. Thus viewed, money is found to be an agent that is performing several functions that are quite as important as, though perhaps less obvious than, those performed by railways or manufacturing establishments.

Section B, "Money, Capital, and Wealth," portrays the confusion of mind that has always existed on the subject of money. The fact

that the values of all other commodities are stated in terms of money, and that it constitutes a general fund of purchasing power-a veritable key to things desired-has always resulted in a very general misunderstanding of its real importance and significance. By many people money has almost been regarded as an end in itself, and by still more it has been deemed at least a very superior form of wealth, a plentiful or scanty supply of which renders a nation rich or poor, powerful or impotent. The purpose of including in a scientific treatise numerous proverbs and literary quotations is to reveal the universality of these monetary notions. The results of these confused ideas on the subject are shown in following chapters. It need merely be said here that the exciting, even bitter, monetary controversies that have for centuries almost continuously commanded the attention of mankind center very largely around this popular misconception of the nature and functions of money.

The selections under Section C, "The Rôle of Money in Industrial Society," are written from an angle or point of view somewhat different from that taken in the selections under Section A. While not denying that money performs the functions first enumerated, these writers are not content to let the analysis stop at that point. Rather, they use these underlying functions of money, that is, as a medium of exchange, common denominator of values, etc., as a starting-point for a broader analysis of the dominant place that money occupies in directing the ordinary everyday business of the world. Since money constitutes a fund of general purchasing power, it serves as the basis of all business undertakings and, either directly or indirectly, as a measure of practically all the affairs of life. By it we express the relative value or worth of all commodities whatsoever; we use it as a convenient measure of services of every kind; indeed, it is frequently charged that we measure human worth and achievement in terms of dollars and cents. We reckon national, as well as individual, wealth in money, and even say that the wealth of the nation is a hundred billions of dollars, as though it actually consisted of so much coined metal or printed paper money.

This universal measuring of things in terms of dollars and cents has placed money in a position of unique importance in the industrial system. The desire to make money appears to be the mainspring of human effort and the basis of business organization. Price becomes the great controlling and directing force in economic affairs, the very center of the economic structure of society.

A. The Nature and Functions of Money
BARTER AND ITS INCONVENIENCE

I.

BY JOSEPH HARRIS

In the earliest stages of culture commerce between individuals takes place exclusively by means of a direct exchange of commodities. A fish is traded for a fowl and a bow for a dozen arrows, in the same way that boys in a highly complex society often make a direct exchange of a top or a ball for a knife or a puzzle. It is in the inconvenience of this direct exchange of commodities, or barter, that we find the origin of the institution of money.

The first commerce amongst men was undoubtedly carried on by barter, or the exchange of one commodity for another. But as men and arts increased, a mere barter of commodities became inconvenient and insufficient in abundance of instances. For it must needs frequently happen that one man would want goods of another who had no present use for those goods which he had to give in exchange; and therefore to him these goods would be but of small value; and it might be a tedious and intricate course, before the goods of the first man could be so often bartered, till at length they became exchanged into that particular commodity which the second wanted. The same inconvenience would attend private bills, or promissory notes; for the note could not well be discharged till the man who gave it met with a customer that had goods which suited him. Added to this was the difficulty that contracts payable in goods were uncertain, for goods, even of the same kind, differ in value. One horse is worth more than another horse; wheat off one field is better than wheat off another; cows, horses, swine, etc., wheat, barley, oats, etc., might differ greatly in their value. A great disparity also would frequently happen between artificial things of the same sort, as one workman excelled another. So that in this state of barter there was no scale, or measure, by which the proportion of value which goods had to one another could be ascertained.

In a state of barter there can be but little trade and few artisans. For want of a ready exchange for their goods people would look little farther than to get food and some coarse raiment: The landed men would till only so much land as sufficed their own families and to procure them those few rude necessaries which the country afforded.

I

Adapted from An Essay on Money and Coins (1757). Reprinted in Select Tracts on Currency, pp. 368-69.

Hence, without some kind of money the arts can make no progress; and without the arts a country cannot grow populous or flourish. Ignorance and idleness will naturally beget trespasses, incroachments, wars, and contentions, ever destructive to the growth of a people. Does not this account for what we daily see, even amongst nations reckoned polite? And how important is it that the rulers of the earth should be more liberally educated?

2. A DEFINITION OF MONEY

"Money is a medium of exchange." This is the common dictionary definition of the term, but, as we shall see, it is much too limited in scope and conveys but an imperfect idea of the nature and functions of money. Ask the ordinary man on the street, who knows no book definition, what money is, and he will tell you readily enough that money comprises coins of gold, silver, nickel, and copper; and paper money. He will usually not know the distinctions between greenbacks, silver or gold certificates, and bank notes; so far as he is concerned all these are merely "paper," as distinguished from "metallic" money. Such instruments as checks and drafts he would probably not consider money, though he would doubtless recognize that they perform a service very similar to that performed by money. He might add, if questioned further, that money is something specifically devoted to the work of making exchanges, and that it has been manufactured for that precise purpose. Finally, he would be sure to appreciate that the possession of money would give him purchasing power, regardless of whether he came by the money honestly or dishonestly, whether his own credit was good or bad. Bringing all this now into the semblance of a definition, we might say that money includes those instruments of exchange which pass freely from hand to hand, without reference to the personal credit of the parties concerned.

Such a definition, while quite satisfactory in the ordinary world of affairs, and, indeed, while perhaps as good a cut-and-dried definition as could be given for any purpose, will require a number of qualifications and explanations for the purpose of economic analysis. We shall need to know the differences between real and representative money, and between standard and subsidiary and token money. We shall need to know, further, the functions which money serves other than as a means of exchanging commodities.