commodity; in order to satisfy his wants he has but one operation to perform, and this operation is an easy one. The possessor of any other kind of goods must accomplish two operations, one of which is comparatively difficult. It has been well said that a particular commodity corresponds only to a special and determinate want, while money corresponds to any indeterminate and universal want. The owner of a very useful commodity may not know what to do with it. The possessor of money, on the other hand, is never thus embarrassed; he is always able to find someone to accept it, and if by chance he is at a loss how to make use of it at once, he still has the simple expedient of keeping it for a more favorable opportunity. With other commodities this expedient is not always possible. But if, instead of considering the position of an individual, we regard the whole mass of individuals constituting society, the point of view changes and the economists' thesis (that the amount of money in a country is a matter of indifference) is more correct. Little do I care for a tenfold increase in the amount of money in my possession if the same increase takes place for all the other members of society. For in such an event I should be no richer than before; since wealth is purely relative, I should not be able to obtain a larger amount of goods. The sum total of wealth out of which our claims or "orders" are paid would be no greater than before, and each "order," i.e., each piece of money, would entitle me to a share only one-tenth as large. In other words, the purchasing power of each coin would be one-tenth as great, or, all prices having been multiplied by ten, my position would not be changed. 25. THE SUPPLY OF STANDARD MONEY REQUIRED' BY LYMAN J. GAGE The amount of standard money required by any country in my opinion cannot be definitely stated. One can only reach a general estimate. In order to arrive at this estimate it is necessary to inquire into the various uses which gold serves. First, it is practically out of use as a medium of exchange, and the demand for it in that connection need not be considered here. Second, a proper supply of gold is indispensably necessary for settlement of balances of international trade, and our supply should be large enough to permit the exportation of what may be required in such I Adapted from "The Sufficiency of Our Present Currency System," Sound Currency, X (1903), 61-63. settlements without causing serious alarm as to the impairment of our remaining stock. Third, gold serves as a regulator of all other forms of money, including the vast amount of credit currency. There must therefore be a proper ratio of gold reserve to the various forms of credit money in use. What is a proper ratio varies according to time and circumstances. A ratio which at a time of budding prosperity, of reawakening enterprise and full confidence in the future, would be abundant, even superfluous, might prove to be, in an unfolding period of depression, of doubt, distrust, and business failures, dangerously small. But as a general proposition the quantity of gold is not a matter of great importance, for given a certain quantity, be that quantity great or small, it will in the long run tend to relate or establish prices of things and wages of labor. Multiplying the prices of all commodities, labor, and services by ten would not make anyone richer. Dividing prices would not make anyone poorer, since once established the exchange ratios of commodities and the power of labor to purchase goods would not therefore be relatively changed. It is true that a sudden change in prices, either in one direction or the other, would create incidental hardships, because the change in prices could not in the nature of things be uniform or simultaneous, and time contracts would be radically affected. Were I to put in a single paragraph what I would consider the ideal thing on this question of standard money, gold, it might be stated after this manner: A given quantity of gold, to which the floating volume of credit and the prices of commodities had, through natural laws, operating over a long period of time, become normally related. To this stock of gold, gradual but not sudden accretion is to be desired, sufficient to bear the increasing strain of an increasing volume of trade, an increase large enough to keep prices on a general and continuous level. C. The Rôle of Money in Industrial Society 26. THE STANDARD OF DEFERRED PAYMENTS AND By W. CUNNINGHAM The scarcity of the precious metals in Rome, coupled with their fluctuating value, rendered it exceedingly difficult for anyone to save wealth; they also made men unwilling to risk their accumulations Adapted from An Essay on Western Civilization and Its Economic Aspects, I, 186-87. (Cambridge University Press, 1898.) in business of any kind, and to use it as capital. The complete uncertainty in regard to prices paralyzed trade, and capitalists were "induced to hoard their coins of pure gold and silver for better days," which never came. Industry did not offer a tempting field, as the enterprising man of business would often have to face the competition of a manufactory organized by the State and controlled by officials whom it would be imprudent to offend. There was even greater disinclination to use capital in agriculture and apply it to permanent improvements. Accumulated wealth was hoarded rather than invested, and general decay ensued; money and circulating capital are not necessary for the maintenance of human life, but they were necessary for the maintenance of a civilized society like the Roman Empire. Since capital was not available, there need be no surprise that labour failed to find employment and that land went out of cultivation; these again are the very circumstances in which population would necessarily decline. 27. MONEY AND CAPITAL ACCUMULATION BY WALTON H. HAMILTON One of the most important services generally assigned to money is the encouragement of capital accumulation. This function is variously attributed to money as a medium of exchange, to money as a store of wealth, and to money as a measure of values. Yet, since in even a non-exchange society some economic thought is taken for the morrow, no one of these is indispensable to capital formation. As a medium of exchange money contributes little to capital formation. A farmer may live upon the provisions he has saved while constructing a ditch to protect his crops. He may exchange these directly for the labor of others embodied in the ditch; for the barter system does not preclude an exchange of present for future goods. Even under the complex conditions of today a monetary medium of exchange is unnecessary. Savings are usually deposited in banks in the form of "credit instruments," each possessing a certain number of "units" of value. They are exchanged for certificates of ownership of productive wealth, such as deposit slips, bonds, and stocks. The emphasis upon money as a storehouse of value is likewise erroneous. True, values can be converted into money which its owner can hoard until he is ready to use it. But in such case the use of the value in question is merely postponed; the lack of an increment in value sufficiently attests the non-capitalistic character of the operation. Today the processes of accumulating savings and producing technical capital goods are closely synchronized. Through savings individuals surrender their claims to wealth, and through the instrumentality of "financial middlemen" these claims are transferred to those engaged in the technical production of capital goods. Thus in general there is no time interval between saving and production during which values have to be bottled up and preserved. The contribution of money to capital formation is much less direct. It inheres in the nature of a society highly organized upon the basis of a "pecuniary unit" which is a common denominator of values. Some of the more important aspects of this contribution deserve at least passing notice. First, calculations on the basis of the "pecuniary unit" are necessary to an appreciation of future values. In a non-calculating society few future values will stand out. There is no way of measuring values of varying degrees of futurity. But the pecuniary calculus easily resolves these. Not only does it place definite values upon future goods, but it estimates with considerable accuracy their cost. Because of their association with the "roundabout" method of production, the latter are varied and numerous. The determination of their values is further complicated by such technical facts as replacement, depreciation, and obsolescence. Consequently an accurate accounting system, based upon a precise unit, is necessary to an appraisal of the costs and values of future goods. Second, a pecuniary calculus is necessary to a rational comparison of present and future values. Such an instrument enables future, as well as present, needs to be translated into "prices," in which form both can, in competition, make their appeals to the economic motives of man. The whole aggregate of uses, present and future, to which goods can be put is reduced to an intelligible scheme. Thus rational thought can be taken both for today and for tomorrow. Third, accumulation and production of capital goods are organized, as aggregates, into a comprehensive system. Under a non-exchange system many, lacking means, will wish to invest; others, having means, will lack opportunity for investment. But the system provides no instrument for bringing accumulations and opportunities together. But under the pecuniary system the processes of saving and technical investment are separated. The uses to which capital can be put are gathered together into a nicely arranged scheme. Likewise, potential savings are aggregated into a similar scheme. Through competition the two aggregates are brought into harmony at a "price" or a "rate of interest." Fourth, the pecuniary calculus makes possible an intricate mechanism which brings savings and investments into a nicer adjustment. There is created a complex structure of savings and investment banks, trust and mortgage companies, insurance associations, investment companies, and underwriting syndicates, which together bridge the gulf separating the two. By splitting up investments into shares of various sizes these companies are enabled to offer to each capitalist an investment equal to his savings. By issuing different kinds of "securities" they are able to offer risks compatible with the romance in varying temperaments. In like manner, by aggregating or dividing individual savings, they can furnish capital in amounts exact enough to meet the needs of any productive venture. They can also, on varying conditions, supply funds to meet any reasonable risk. Thus saving and investment are alike encouraged by the nicest kind of adjustment between the two processes essential to the formation of capital. In these several ways an organization of society, based upon the 'pecuniary unit," furnishes both the incentives and the means for capital formation. 28. MONEY AND BUSINESS ORGANIZATION1 BY THORSTEIN VEBLEN Economists are in the habit of speaking of money as a medium of exchange, a "great wheel" for the circulation of goods. It may be true in some profound philosophical sense that money values are not the definitive term of business endeavor, and that the business man seeks through the mediation of money to satisfy his craving for consumable goods. Looking at the process of economic life as a whole and taking it in its rationalized bearing as a collective endeavor to purvey goods and services for the needs of collective humanity, the office of the money unit is perhaps rated as something subsidiary, serving to facilitate the distribution of consumable goods to the consumers, the consumption of goods being the objective point of all this traffic. Within the range of business transactions, however, this ulterior Adapted from The Theory of Business Enterprise, pp. 83-85. (Charles Scribner's Sons, 1910.) |