Price is defined by economists as the "money value" of commodities. Francis Walker defines it as the "power a thing has to purchase money." He, however, in common with most other writers, uses the term value as synonymous with purchasing power. I have already pointed out the difference between these two terms. The definition above given, viz., "the power a thing has to purchase money," whilst in one sense a correct one, conveys the idea that the price of a thing varies, not only with the demand for the thing itself, but with the demand for money. In other words, by this definition the idea is implied that money is a commodity, and therefore is subject to the law of supply and demand. Scientifically considered, as I have shown, money is not a commodity, and the moment that that absurdity known as the "standard of value" is abolished, and laws restricting its issuance repealed, money will assume its natural position as an invariable common denominator of values. The price of a thing will then be wholly dependent upon the demand for the thing itself, and not upon the demand for the medium of exchange. We have seen that money, the medium of exchange, is the expression of values or purchasing powers of commodities. But how is it possible to accurately express values by a medium which is itself subjected to independent influences?
Imagine a thermometer, the scale of which is composed of a highly expansive substance, and so situated that it is acted upon by an artificial heat, to which the bulb is not exposed. It is evident that such conditions would render the thermometer altogether worthless. We should have a scale whose graduations measured 1/32 of an inch one day, 1/16 of an inch another, 1/8 another, and so on, according to the degree of artificial heat to which it is exposed. Hence, without any change of atmospheric temperature, we should find the scale registering, say, 60° one day, 70° another, 80° another, and so on. This is precisely analogous to what happens in our monetary system with commodity-money. The analogy works perfectly well and describes the monetary world under which we live at the present day where all money is a commodity subject to the arbitrary forces of speculators, bankers and the politicians they bribe, threaten and buy with their “public” money and “their” precious metals and all else their money denominates; stocks and bonds included. If we did not say so anywhere else on this blog, and we have, we'll reiterate what we said before; no one should be rewarded for holding onto any legitimate money which represents unfinished barter transactions and it should never be possible to “earn” a living from idleness. Continuing Kitson's analogy -
The bulb or mercury corresponds to commodities; the atmospheric heat to supply and demand to which commodities are subjected. The scale represents money and the expansive substance is gold. The artificial heat bearing upon the scale is the supply and demand of gold or money. Note how both gold and money are commodities, as they are to all speculators and bankers.
Now it is very certain that so long as money, or its commodity, is subjected to the law of supply and demand, it becomes quite impossible for money to register, even with an approximation to truth, the actual variations in the values of commodities. As a means of accurately expressing values, such a system must, from the nature of things, be a total failure. And when we reflect that this scale — money — is controlled by a class of speculators whose interests it is to be continually changing the scale, — first enlarging and then diminishing its graduations, — changing the purchasing powers of dollars and sovereigns by manipulating their supply, — how absolutely unreliable, unscientific such a monetary system is, how false it must be in its mission, how dangerous to commerce and industry, how menacing to the welfare of society and mankind, the slightest consideration will make evident. Indeed! We have always regarded the financial and monetary system as a machine that was devised by the people who ran the machine in ancient times and who want to continue to run it for their special benefit into the future. The purpose of this blog was to help make more people become aware of these facts, but then to provide a real solution, another and better machine that would work to everyone's benefit, not just those of certain “special” people.
Just as the thermometer scale must be invariable in order to make the thermometer of any use, so money must be of such a nature that it cannot vary from supply and demand, in order that commerce may be successful and freed from the continual annoyance and disaster to which it is now subjected.
A medium of exchange founded upon a scientific, instead of a specie basis, will be in itself invariable and not subject to commodity laws. It will faithfully and constantly register the fluctuations in the prices of all commodities including gold itself. Our proposal does exactly that; it determines the purchasing power of the two commodities, gold and dollars while remaining invariable in its own scale. At inception, 1,000 Value Units would have equalled an ounce of gold, but 17 December, 2014 an ounce of gold was only 688.15 Value Units. The Value Unit did not change, however the gold price, based on speculation since the proposed Value Unit's inception date, caused the price in Value Units of gold to change.
I have already shown that all commodities may be considered to possess special purchasing power (This word must not be taken in too literal a sense. Purchasing power is no more a property of commodities than value is. I use the expression merely in a conventional sense.), whilst money is general purchasing power. I should, therefore, define price as the special purchasing power of commodities, expressed in terms of general purchasing power. The price of a thing is its special purchasing power expressed in units of general purchasing power. He just stated the same thing twice for emphasis. If you don't get it, read it over and over again until you do get it. Also note that Kitson was as chary as Riegel concerning attributing to anything, either a commodity or money, anything that could be easily misconstrued to mean something “mystical” or arbitrary; power, purchasing power or even value measurement which comes the closest to describing what money is supposed to do.
The immense advantage which an invariable medium of exchange affords to commerce we may readily see, as well as the disadvantages arising from a variable one. With money as an invariable medium, or common denominator of values, as it is termed, there can be no such thing as a general rise or general fall in prices. This phenomenon occurs whenever money is affected by the law of supply and demand. With a scarcity of money prices go down, and with a glut of money prices advance. The cause of the variations in the money supply is wholly attributable to a monopolized, restricted currency: or, in other words, to treating money as a commodity. We note in passing that bitcoin is exactly the same in this regard as any “public” money. It is a commodity and is therefore subject to speculation and indeed has already gone through many up turns and down turns and shall continue to do so. Bitcoin is NOT a solution! No bitcoin in any sense is YOUR money either.
By following to its termination a complete exchange, we shall best perceive the serious evils arising from the use of a variable medium. A complete exchange transaction is accomplished only after the money received for the sale of one commodity is used to purchase some other. Money is evidence of spit barter and not a commodity itself. For example, let A represent a commodity for sale, M the medium of exchange (money), and B another purchasable commodity. Now the sale of A is represented by A = M; but as money is only a means to an end — an inter medium — the exchange operation is but half performed. It is completed as soon as the money is used to purchase something else. M = B represents, therefore, the second half of the exchange transaction, which is wholly represented by A = M = B, which represents exactly the true functions of money. It shows that A is exchanged for B through the intervention of M. M should, therefore, merely record the relations existing between A and B, and in order to do this, it must be, per se, neutral. This is precisely the same as Riegel saw it.
Whilst economists recognize the variations to which commodity-money is subjected, they argue that these variations do not work injustice, since they affect all commodities proportionately. Thus, if M increases in volume and affects the price of A, it affects B to the same degree, and, therefore, the relation of A to B is expressed as accurately as if M had remained constant. Thus, John Stuart Mill says: "The relations of commodities to one another remain unaltered by money; the only new relation introduced is their relation to money itself, how much or how little money they will exchange for; in other words, how the exchange value of money itself is determined." Mill is making an absolute excuse for speculators in money as a commodity here, no doubt about it!
Now, it is true that "the relations of commodities to one another remain unaltered by money," providing that the complete exchange takes place at the same instant and in the same place; but if between the time of selling A and purchasing B an interval elapses, during which M has changed its relation to A and B, then it is certain that the use of M does alter the relations of commodities to one another; and this is what generally happens. It is seldom that a man finds it convenient the instant he sells his goods, or receives money, to purchase other commodities. He finds it necessary, as a rule, to store money for a time when he will need certain things. Under our present system of credit, goods are invariably sold upon time, 30, 60 and 90 days. The prices for which such goods are sold are those ruling at the time of the sale. Recall our discussion of the various names for credit contracts under a fully operating Valun Exchange Network (VEN): a bill could extend no longer than a year, a note no longer than 7 years and a bond no longer than 49 years with a jubilee year at year 50. These are all very old standards for accounting credit and debt relations to clear transactions requiring lengthier periods of time. The money required to satisfy these transactions is all created before they transpire from other transactions and is destroyed in the process of paying for that which is purchased, thus clearing or completing the transaction A = B, no matter how long it may take to do so.
If, therefore, a change occurs in the supply and demand for money, during the time given for payment, it is very certain that an injustice may be done to the seller by this disturbance, since the relation of commodities to each other has been changed by reason of the change in the value of money. (If all prices were altered in like proportion, as soon as money varied in value, no one would lose or gain, except as regards the coin which he happened to have in his pocket, safe or bank balance. But, practically speaking, as we have seen, people do employ money as a standard of value for long contracts; and they often maintain payments at the same invariable rate, by custom or law, even when the real value of the payment is much altered. Hence, every change in the value of money does some injury to society.) Indeed, so! “It might be plausibly said, indeed, that the debtor gains as much as the creditor loses, or vice versa, so that on the whole the community is as rich as before; but this is not really true. A mathematical analysis of the subject shows that to take any sum of money from one and give it to another will, in the average of cases, injure the loser more than it benefits the receiver. A person with an income of one hundred pounds a year would suffer more by losing ten pounds than he would gain by the addition of ten pounds, because the degree of utility of money to him is considerably higher at ninety pounds than it is at one hundred and ten. On the same principle, all gaming, betting, pure speculation, or other accidental modes of transferring property, involve, on the average, a dead loss of utility. The whole incitement to industry and commerce and the accumulation of capital depends upon the expectation of enjoyment thence arising, and every variation of the currency tends in some degree, to frustrate such expectation and to lessen the motives for exertion.” (“Money and the Mechanism of Exchange,” Jevons)
With a medium of exchange liable to experience all the fluctuations to which other commodities are subjected, by reason of variations in supply and demand, by "corners," gambling and speculation, is it any wonder that success in trade and commerce seems to be a mere matter of chance and good luck, rather than the natural results of conforming to certain scientific laws and steadfastly working along their prescribed lines? Here, then, we find another proof of the absurdity and perniciousness of basing money upon a particular commodity, already demonstrated by the Gresham Law. Yes, we're so glad that he sees the obvious. People some 120 years after this was written still fail miserably to get it!