"Money, the only power that all mankind falls down before/*— Samuel Butler's ''Hudibras''
Whenever we are brought into a discussion of the money question, we are confronted with one great obstacle — a superstition — which has become strongly entrenched in the popular mind, what may be termed the fetishism of gold and silver. So accustomed are we to associate things with their functions, there finally grows in our minds the idea of a personality belonging to the object itself, and we unconsciously ascribe to it human qualities and tendencies. Thus we hear daily the expressions "good money," "bad money," an "honest" and a "dishonest" dollar. Gold is called "cowardly," and is said to "refuse" to circulate, and the very acme of fetishism is contained in the expression "money talks." Indeed! That superstition was remarked by Riegel over 60 years ago and it is still alive today, although with the younger generation, it is having a swipe card with lots of credit on it, for to them, this conveyance is also money. The “gold bugs” of course long for a time gone by that was itself brief, when either gold or silver circulated as money and they have missed the point that money actually exists as numbers first and foremost and more exactly those on a common ledger of exchange before they are circulating tokens, be they of seashells, paper, silver or gold.
While at first these expressions and ideas are merely figurative, after a while, especially among the ignorant -our precise definition of an idiot applies-, the idea engenders belief and superstition. Travellers tell us how difficult it is to get the minds of those who practice idol-worship -the analogy fits perfectly as people do in fact idolize money or the mere expressions of it- to distinguish between objects and their functions. It is precisely this superstition which renders the money question so difficult of comprehension by the average man. Accustomed all his life to handle coins -or swipe cards, it makes no difference-, which perform the money function, the coins -or cards- are to him money itself, just as to an engineer the idea of force is contained in the conception of a steam engine -use any convenient anlogy for this to bring it up to date from 120 years ago-. To him the engine becomes synonymous with the invisible force, instead of the instrument through which force is manifested. To thoroughly comprehend the idea of money, we must separate entirely in our minds the material through which or by which money is expressed, and money itself. Riegel admonished us to think likewise.
The money question is the practical side of the value question, and it remains to be seen whether the theory of value, as propounded in the foregoing part of this work, admits of practical application or not. In science, theory and practice must always agree, and where this is the case, the results of such practice must be those sought after. Where the results of a financial or commercial policy differ from those aimed at and desired (which, under our present system, is generally the case), we may be sure that the policy is not in harmony with the science, and that it is based upon unscientific principles. The essential and fundamental problem with economics as presently practised; it is instead of being a science, a mere descriptive discipline intended to establish an apologetics for present institutions and their ways of conducting business. The present monetary systems of the world may be briefly described as follows:
In order to facilitate the exchange of goods, one commodity is selected as a standard to which all others are compared, and the values of all are expressed in terms of this one. Gold is the standard commodity selected by the civilised world -since Bretton Woods and after agreements, it has been the US dollar, still a commodity- and is the basis of all or nearly all the world's monetary systems. Money is, therefore, defined as a commodity, and is said to perform the functions of -
(1) a medium of exchange;
(2) a common measure of value;
(3) a standard of value; and
(4) a standard of deferred payments.
The advantage of money as thus constituted, is stated to consist in avoiding the inconveniences of barter, viz., "the improbability of coincidence between persons wanting and persons possessing; the complexity of exchanges, which are not made in terms of one single substance; and the need of some means of dividing and distributing valuable articles." (Jevons) Money is said to overcome these difficulties by acting as a common denominator of values.
Innumerable discussions have taken place regarding the true nature and functions of money, but nearly all our modern economists agree in regarding money as a commodity. Those who have accepted E. C. Riegel's observations on money stand in a minority opinion roughly as Copernicus did to Ptolemy concerning the nature of the orbits of the planets. Now I have already shown that there is no such thing as a standard or measure of values, that the very terms involve an absurdity, and that their existence is impossible by the very nature of things. Riegel would have agreed, which is why any and all so called standards, including the one advocated by this blog, must by nature be arbitrary. There's nothing wrong with that so long as everyone recognizes it as a fact; that no absolute measure of value is possible. Money is, therefore, not a standard nor a common measure of values, and it will be unnecessary to deal further with these two so-called functions. So strike (2) and (3) as listed above from your list. Money is NOT an absolute measure of value and NOT a standard of value. Any agreed upon “measure of value” a real alternative to present money may be, must be arrived at by mutual agreement, not by a market of speculators, but by an agreement among traders of tangible goods and services (labour) recognizing a particular transaction as the basis for that standard based on a particular TIME. Of all the possible commodities to choose from, the two that make the most sense at this point in TIME are the US dollar and an ounce of gold; the proposal set forth by this blog.
We will now investigate the true origin, nature and functions of money, and then endeavour to solve the problem as to whether a commodity can perform the functions of money. The origin of money can be traced to the inconveniences which the system of barter gave rise to. These inconveniences arose from the very nature of the things exchanged, viz., a want of divisibility. Were all commodities easily and alike capable of division and sub-division, they might be exchanged in any and every proportion. The difficulty of making all commodities proportionally exchangeable gave rise to the need of a means of reckoning and expressing these exchange proportions. Don't be confused. Money is NOT the tokens it represents, it is the arithmetic of exchange as Riegel recognized.
Thus, if a horse dealer desired fifty bushels of corn, and the corn merchant wanted a horse, an attempt to barter a horse for corn would be made. The dealer considers, and the merchant agrees that the horse is worth 200 bushels. Thus, 1 horse = 200 bushels of corn -at that TIME to ONLY those two traders! Now, since it is impossible to divide a horse and still utilize his services, if the exchange takes place, the horse dealer has 150 bushels of corn that he has no use for. If he takes but fifty bushels, the merchant owes him 150 bushels or its equivalent. There at once arises a debt, and from this inequality in exchange originates the need for money. Not covered by Riegel, but it certainly can be covered by this blog. Since money represents the splitting of a barter transaction perfectly in half between buyer and seller, all true money therefore DOES represent the buyer's debt to the seller until such time as the seller redeems the money for goods and services bartered for what he sold to the buyer for services or goods he requires. Since these are debts, however temporary, the concept of an “exchange note” as we had described it, is a perfectly acceptable term to use to describe paper instances of money. As far as precious metals are concerned, they are not money, but actual commodities used in barter. In either case, such a trade requires third parties in agreement. In the case of notes, they are the bookkeeper, in the case of precious metals, the metals broker.
Now we have already seen, in discussing the subject of value, that the proportional relation in which commodities exchange with each other is termed their value. Hence, a system that is to avoid the inconvenience attending barter must be to express values, I have shown that values are only capable of numerical expression. A monetary system must therefore be a numerical system. This may seem obvious, but again, this is a natural fact.
Let us, in thought, transport ourselves to an age and place where material money is unknown. The business and commerce of such a place will consist of the direct exchange of various products necessary to life and happiness. A farmer will send his corn to market and barter it in various amounts for the different things he may need. So the sheep-grazer will barter his sheep with the vintner for wine, the weaver his cloth with the hunter for game, and so on.
But certain inconveniences arise. Occasionally the farmer, who needs wine, finds the vintner is not in need of corn, and as corn is all he has to pay with he is at a loss to know what to do. The farm-labourer who engages with the farmer on the basis of receiving a certain percentage of the crops for his labour, finds himself in need of boots, clothes and various other things. He cannot always exchange his corn directly for what he needs. The physician who has served the sheep grazer does not care for mutton, hence sheep are not desirable to him. How will the sheep grazer repay the physician? Again, the carpenter who has built a house for the vintner, finds that if he accepts wine in return for the house he will have enough to last him 200 years, should he live so long. As he cannot live wholly on wine, he does not wish to accept payment solely in that commodity.
Here the necessity arises for some plan or system by which the industry and commerce of the community can be carried on without these difficulties arising. The community is in need of an inventor, with brains enough to devise a means for overcoming these inconveniences. Two plans may be suggested. The one which has been most generally adopted we will describe first. "In process of time," says Macleod, "all nations hit upon this plan: they fixed upon a certain material substance -a commodity- which they agreed to make always exchangeable among themselves, to represent the amount of debt." (Ibid, Macleod) Just because a commodity is used as money does not make the commodity money; gold and silver have other uses than as money so therefore they are NOT money in the strict sense.
The substance selected was one which Professor Jevons says, "seems designed by nature for the very purpose,” viz., gold. "Since it can be melted, divided and sub-divided, is homogeneous, portable, cognizable, indestructible and stable, it appears the most appropriate substance for this purpose."
The various merchants, farmers, sheep-raisers, etc., would, therefore, have to go to the gold-smith and arrange with him as best they may for a supply of gold pieces. If anyone tells you there isn't a third party in a transaction involving precious metals, that person or source is a LIAR! Yes, there most certainly is a third party to any and every barter transaction involving gold or silver and that is the metals broker; goldsmith (or silversmith).
Having first agreed among themselves to accept these -gold or silver- pieces in exchange for their several products in certain ratios, the business of the community would at once proceed, and obstacles previously encountered would be remove - providing always that these traders had power at all times to command gold with their commodities. Failure on the part of the goldsmith to part with any more pieces, would simply throw the community back into its original barbaric state.
Were the inventor of such a scheme a nineteenth century operator, he would, prior to propounding such a plan for facilitating exchange, proceed to get control of all the gold and gold mines of the community. He would then persuade the government of the community to pass a law making gold the legal tender, and fixing as an arbitrary standard of value a certain weight of gold. Having accomplished these things, he could safely consider himself as rich "beyond the dreams of avarice." Having safely established the system for facilitating exchange, and assisted the community by loaning them gold, he need only close his mines and hoard his treasure, in order to shortly have a substantial portion of the wealth of our imaginary society fall under his control. By controlling the medium of exchange, he would control the entire commerce of the community. There, in a nutshell, is The Babylonian Woe, to which the entire world has been and is now in thrall and since it is mostly hidden from view to the average man or woman, it is therefore named Mystery Babylon.
Now, whilst the use of this substance, gold (or silver as there is no real difference in the way they operate), would ( so long as the gold merchants permitted it ) facilitate exchange and avoid the complications before pictured, the system would still be a system of barter. The exchange of corn for gold is as much barter as if exchanged for wine or anything else. It is the exchange of one product directly for another. There is here no appearance or conception of money. Kitson is in absolute agreement with Riegel here!
Let us now suppose that gold and silver and precious metals were, unknown to our imaginary community. The inventor hits upon this plan. He first finds the proportion in which all the various products stand to each other. Thus, he finds that the farmer and vintner exchange one bushel of corn for one gallon of wine; the sheep-raiser and farmer, one sheep for twenty bushels of corn; the weaver and vintner, one yard of cloth for two gallons of wine, and so on. He then tabulates all commodities in their exchange relations, thus:
Bushels of Corn 20
Gallons of Wine 20
Number of Sheep 1
Yards of Cloth 10
That is, twenty bushels of corn exchange for twenty gallons of wine, or one sheep, or ten yards of cloth. Arranging all commodities from the least to the most valuable, their exchange relations are thus expressed by their respective quantities. By dividing their least common multiple -20- by each number respectively, we find their value relation. Thus:
Corn 20/20 = 1 bushel
Wine 20/20 = 1 gallon
Sheep 20/1 = 1 sheep
Cloth 20/10 = 2 yards
By taking the integer one as a unit, commodities can be ranged one above another, thus:
One bushel of corn would be equivalent to one unit of purchasing power, and one sheep to twenty units, and so on, at this particular time and place.
Taking this unit to represent a unit of purchasing power, our inventor would suggest the printing on pieces of durable paper of convenient size, single units and multiples of units representing such purchasing power.
Such notes -representations of yet unfulfilled barter or debt- might be issued under the authority of the government of the community, or each merchant might issue his own. Thus, in the case of the farmer and his assistant, instead of giving him, say ten per cent of his crops, or perhaps one thousand bushels of corn for his services, he would, by consulting his table or market report (which would be published daily as now, giving the fluctuations in the various commodities) find corn marked, say ten units of purchasing power per bushel, and then pay him notes to the extent of ten thousand units. Similarly the sheep-raiser would give the physician notes to the extent of thirty or forty units, and so on. If the community be a small one and each member agrees to accept the notes of another, such notes can be issued individually; otherwise the community collectively would issue them.
Here we have the true and scientific form of money. In the first case, as we saw, money does not exist. It is merely the bartering of all commodities for one particular commodity. In the last example, the medium of exchange is not a commodity. The exchange of corn for so many arbitrary units expressed on pieces of paper, is not the exchange of one commodity for another, but for a right or power to demand services or commodities at any future time. The only requisite that such notes need to constitute money is, that the members of the community shall agree to accept them from each other in exchange for products. Here folks is the essence of money and defies the arbitrary establishment of any particular commodity as the means to complete barter. The hitch is this – the market report (which would be published daily ... giving the fluctuations in the various commodities.) The hitch involves two things
(1) the possibility of the report being wrong or swayed by speculation and (2) that no report can ever be considered exhaustive, particularly regarding labour, which becomes a commodity.
What we must be left with as regards prices in any monetary system are hunches as to what various commodities and services are worth when compared with each other. We do this all the time when we shop for anything, including personal services. The process is euphemistically called “getting your money's worth.”
Consider, for instance, the transaction between the farmer and the farm labourer. Entitled to ten per cent of the crops, the latter finds himself unable to utilize the produce in the way he desires. The farmer owes him, as we saw, one thousand bushels of corn; but the labourer wants shoes, clothes, hats, and a variety of commodities. Now suppose the farmer pays him the value of the corn in gold. He is as badly off as if he were paid in corn, unless the gold be more generally acceptable than the corn, since it is not the gold he wants, but what it will procure. The payment, therefore, of the notes, or in other words the money, is the acknowledgement on the part of the farmer of a debt equivalent to one thousand bushels of corn at that particular time and place.
The notes are orders upon any and every member of the community to render this man goods and services equivalent to the one thousand bushels of corn, and if the notes be issued by the farmer, the community looks to him to redeem them in corn. If issued by the community collectively, they may be redeemable by the government of the community by taxation, or remain in circulation. The payment of the notes or money is not an exchange of two products, such as in the case of a gold medium. The farm labourer has exchanged his product, viz., services, for an order or right to demand an equivalent of one thousand bushels of corn.
Being socially recognized and acceptable and epressed in terms in which the purchasing power of all commodities are commensurable, this paper erves as a means of expressing values and is therefore, strictly and scientifically speaking, money. Understood? Kitson and Riegel agree. Money is therefore not a commodity; the community need not care how many or how few of these notes; evidences of unfulfilled barter, happen to be circulating. There is nothing to cause gamblers to speculate upon as long as the unit the money represents is fixed.
The true nature of money is now apparent. It is simply a right or title to demand some product or service from some one else. Now when a person accepts money in exchange for products or services rendered, he can neither drink it nor clothe himself with it; nor is it any species of economic satisfaction for the service he has done. He only agrees to accept it for the service he has rendered because he believes, or has confidence, that he can purchase some satisfaction which he does want at any time he pleases. Money is therefore what is termed credit. (Ibid, Macleod)
The term "medium of exchange” would indicate a distinction in the very nature of that which serves as a medium and that of the things exchanged. The transaction known as selling is not a barter nor a complete exchange transaction. It is not the exchange of one product for another; it is what is termed a demi-exchange. The exchange is but half completed; it is only complete when we have purchased what we need with the money. Then, and only then, is "the exchange” completed, and reciprocal satisfaction effected.
"A sale of goods for money," (“Money and Trade”) says Francis A. Walker, "is only half a transaction; the other half takes place when the money itself is sold for the goods.” Exactly as Riegel understood it. The medium of exchange must therefore not be regarded as a commodity, nor must it e subjected to the same influences. Which means there can be no speculation regarding a unit of money's purchasing power, or it is a commodity and therefore not money. Understood?!
It must be absolutely invariable, since it must express accurately the exchange relations of commodities to each other. A variable medium cannot possibly do this; and as all exchangeable commodities are variable and subject to fluctuations, no commodity can, scientifically speaking, constitute the medium of exchange. The difference between what is termed “commodity money” and “true money” may be illustrated as follows:
Commodity money: Let A, B, C, be three commodities, C being the commodity money medium. The result of a complete exchange is, as we saw, reciprocal satisfaction. To achieve this, in the first instance, we have, A = C; C = B; that is, two complete exchanges for one economic result.
True money: Let M be money in its scientific form. With real money we have A = M = B, that is, one complete exchange -broken into two parts, and one economic result, viz. reciprocal satisfaction.
The idea of money originates in the desire to affect an exchange, when two commodities of unequal value confront each other. Thus, referring to our former illustration: supposing the vintner desired of the farmer 1,000 bushels of corn, and agreed to exchange at the ratio of 1,000 bushels of corn = 1,000 gallons of wine, but the farmer needs only one gallon of wine, and cannot use more. The vintner, therefore, would owe the farmer the quivalent of 999 bushels of corn, viz., 999 gallons of wine, in such a transaction.
The farmer requires substantial evidence of this debt on the part of the vintner to him, and in such a form that he can transfer it to others for the things that he desires to procure, and which they possess. In order to make such evidence available, it must be socially recognized and generally acceptable. There has to be an actual organization comprising actual people engaged in meaningful trade. It cannot be set up to operate as a mere internet only game!
Suppose under the first system of exchange the vintner pays the farmer the difference in gold. In the absence of any legal tender act, or any governmental interference, has the vintner discharged the debt? This would depend upon whether the farmer accepted the gold in the final discharge of the debt, and his acceptance would depend upon whether society would do the same. He would accept it, therefore, only as a medium, a means of providing what he needed. “Gold bugs” assume that everyone wants their gold and more importantly will be able to exchange it for goods and services without any loss in purchasing power. This is actually quite a leap of faith in and of itself, based on what exactly? Is gold (or silver) that much more to be preferred than something anyone might be able to use? Even drinking water and breathable air are more valuable intrinsically than any precious metals. Besides, look at the record of these precious metals since their highs back in 2011; a steady loss in their purchasing power against the dollar.
But now, observe the difference in the result between a commodity medium and true money, such as I have described. In the use of gold, such a medium is recognized to be the equivalent per se, of the commodities urchased. It is given in final discharge of the debt or obligation. Now, no one believes that gold, functioning as a means of exchange, is of any pecial benefit; it yields no comfort or happiness outside of its acquired money functions; it gives no economic satisfaction; it is not wanted. Hence, the gold-medium as gold is simply useless. It -gold or silver- is of no greater utility than the paper upon which the number of units of purchasing power is engraved. It does nothing more than any material which performs the functions of money. Understood?!
Now suppose the vintner pays the difference in a note representing his debt, is the debt finally discharged? No, not until the note is redeemed in oods. He owes the equivalent of 999 bushels of corn, that is, 999 gallons of wine, and if society agrees to accept his note, it looks to him for its edemption. In this case society would get 999 gallons of wine, a useful and desirable article, instead of several pieces of gold, which, as money, re of no more use than paper. In other words, the use of metallic or commodity-money deprives society of a number of useful commodities, and ubstitutes, therefore, that which is, comparatively speaking, useless. We have, therefore, this principle: The use of commodity-money entails a loss upon society equal to the cost of producing the amount of the commodity so used. By placing money on a scientific basis and making it redeemable in all commodities, instead of in one (or two if a bi-metalic scheme is attempted), and that one a comparatively useless one, the gain to the world would be incalculable.
When I speak of gold as comparatively useless, I mean that if it were suddenly and completely disassociated with money, it would become almost a drug upon the market, and fall in price as silver has recently done, which would hardly pay for producing. The fundamental difference between true money and commodity money is, that where a sale of goods is made for the latter the transaction is complete. We pointed this out when we considered the power of cash.
Now, although economists such as Walker admit that the seller has not received satisfaction until he has exchanged the money for some desirable products, still they regard the transaction as complete, and the debt inally discharged, as soon as the money is paid; hence, there is an economic exchange without reciprocal satisfaction, which is scientifically mpossible. Now we saw when treating of barter, that the test of a complete exchange was reciprocal satisfaction. Both parties to the transaction must receive satisfaction, by an exchange of desirable commodities, utilities. The exchange of a commodity for commodity-money is an absurdity. It asserts discharge of the obligations of the one to the other, with but one satisfaction. It declares the transaction to be complete when it is incomplete. The exchange is said to be complete without accomplishing the natural results of an exchange. It is utterly unscientific, and this conflict o£ the commodity with the money is he cause of all the trouble. As a final discharge of obligation, the commodity takes precedence and declares the exchange transaction completed. As money it asserts itself as being the medium of exchange; not the thing desired but merely its representative, a means to an end, the middle thing, the mechanism of exchange; hence, the contradiction. All the foregoing presages Riegel by sixty years and asserts exactly the same reality. “Gold bugs” need to consider another line of … religious belief., with which perhaps to hoax the public. Our use for precious metals from the very beginning. is the only realistic use for them; as the sole means of exchange between their money and ours. Kitson continues ...
Therefore we are compelled to barter our goods for one particular commodity, which we do not want, in order to acquire the means by which we can ultimately acquire the commodity we do desire. The present order replaced precious metals with the US dollar, a commodity-money. Money is said to express values, and is also called a common denominator of values. Thus, Francis Walker says (“Money, Trade and Industry”): "Value, economists are pretty much agreed, is a relation, and for the purpose of the present discussion we may so take it. But surely a relation, a ratio, cannot be measured! You do not measure the relation of a mile to a furlong; you express it as 8 to 1. You use a common language for the two quantities. You take a common term or denominator for the two distances and thus set them in immediate comparison with each other. This is what Riegel said was the “Figure 1” which we chose as a relation between US Dollars to gold (and silver in relation to these two commodities), always at a specific TIME, that forms the basic relation, but after the fundamental relation with all other currencies and precious metals is established, all prices stated in Value Units -Valuns- assume their own structure. We know at any given point in time just how much a Value Unit will exchange for in any of the other commodity-money, without affecting that price structure in Valuns.
Were you, for example, to say that a mile is 63,360 inches, and a furlong one twenty-fourth part of a league, the non-technical and unskilled hearer would form no idea of the relation between a mile and a furlong. Instead f this, you take one quantity, the furlong, as unity, and state the other in terms of it, and the least learned and least practised hearer at once pprehends the relation. This is precisely what is accomplished by money.” (Ibid, Professor Walker)
Nothing can be clearer or less ambiguous than this description of the function of money, the common denominator of values. After this exposition of the matter, it is astonishing to find this writer, further on, falling into the very error he is warning others against. He says: (Ibid) "Given the fact of a general desire of one article of uniform quality^ which is susceptible of easy and exact division, we have all the requirements of a ommon denominator in exchange satisfied.” But what, in the name of common sense, has "a general desire" for an article to do with "a common denominator in exchange.” We exchange dissimilar things, one kind for another kind. We do not exchange things of the same denomination for each other. For instance, we exchange wheat for butter and butter for gold -and now dollars or some other commodity-money- ; not butter for butter or gold for gold. How can there be a common denominator for things of unlike denomifiation? The statement is an absurdity.
Now the exchange relation is capable of expression in a common language. Whilst the commodities themselves cannot be brought to terms of one denomination, their exchange relations can, and these relations are their values. What has desire to do with ratio? Values, as we have seen, are relations of quantities, ratios of quantities, and can be expressed in numbers. A common denominator of values is, therefore^ a common denominator of numbers; or in other words it is a common denominator of quantities, not of qualities.
Here, for instance, are two commodities whose value relations is as follows
1 lb. Sugar 2
1 lb. Coffee 25
which shows that 25 lbs. sugar exchanges for 2 lbs. coffee. What is the common denominator for this expression of value? The value of sugar to coffee is as 2 to 25. Since these are integers, they are commensurable with unity; therefore unity is the common denominator of their values. The common language of values is numbers. They cannot express themselves through a medium of gold, silver, or corn, any more than a man can express his thoughts through the medium of his clothes.
A "general desire for one article " has no more to do with a common denominator of values than a demand for clothes has to do with language. In fact, it would be as sensible to talk of expressing the relation of a furlong to a mile by "an article" for which there was a "general desire/* as to talk of expressing values, or constituting a common denominator of values, by the same thing. "You do not measure the relation of a mile to a furlong; you express it thus, 8 to 1. You use a common language for the two quantities. You take a common term or denominator for the two distances and thus set them in immediate comparison with each other," says Professor Walker. Precisely so! ...and Riegel would certainly have agreed with all of this. And this is exactly what you do with values. "You use a common language for the two quantities,” and any article of uniform quality, "for which there is a general desire," is as incapable of measuring or expressing the exchange relations of commodities as it is incapable of expressing the ratio of a furlong to a mile.” Both are quantitative relations, and both can only be expressed numerically. The long and somewhat skilful argument by which Professor Walker endeavours to overthrow the errors of the so-called " Hard Money " advocates, is founded upon a fallacy as great as those he seeks to expose. When he writes of money as "expressing values" and as the "value denominator," he is writing correctly and scientifically. He is then treating money from the standpoint of economics. When, however, he writes of money as an "article of uniform quality, susceptible of easy and exact division," he is treating money as a commodity, and from the standpoint of a legalized institution — an institution both unscientific and contrary to the nature of things. Scientifically speaking, it would be just as sensible for a government to pass a law declaring that there shall be two sunsets every twenty-four hours, or black shall be white, as to declare
that 25 & 8/10ths grains of gold shall be a "standard of value," and that money is a commodity. Legislators say a thing is so and so, and science says it is not. Legislators -and bankers and speculators- declare money to be a commodity; science says it is not and cannot be. And so in trying to reconcile two opposing and contradictory theories, Professor Walker, in common with Macleod and many other able economists, misses the goal towards which the science of economy unerringly points. Approach the subject from whatever standpoint you may, providing it is in the true scientific spirit, and the only solution to the money question is found in releasing money from its unnatural association with a commodity. Here stated a good sixty years prior to Riegel and he certainly would have agreed with this. We are more insolent about it because we are proclaiming this as a goal sixty years after Riegel. IT'S ABOUT TIME TO SAY THAT ALL THOSE WHO STILL REGARD MONEY AS JUST ANOTHER COMMODITY ARE FACTUALLY SPEAKING IDIOTS WITHOUT ANY REAL UNDERSTANDING OF MONEY. There is fortunately redemption possible for idiots; all they need is to gain an education and rearrange their thinking. A moron would not have gotten even this far.
This is not the first occasion that the laws of nations have conflicted with those of science. Indeed!
The pranks played by this association of money with a commodity are the strangest possible. It has led economists into a perfect labyrinth of mystery and confusion, until the science of exchanges resembles a Chinese puzzle.
It has led Francis Walker, one of the cleverest economic thinkers, to conclusions directly opposite to those he should logically have reached; similarly with Macleod, the mathematical economist. It made the former condemn paper money, after having satisfactorily and conclusively proved it to be capable of performing perfectly well the money functions, because it did not, forsooth, possess the functions of a commodity; -except that it can and has done so. Numbers of items of whatever they are constitute a commodity. During the post American Revolutionary War period and during the French Revolution, paper money was circulated which the British deliberately counterfeited and caused to circulate which destroyed the purchasing power of each of these paper currencies; the Continental and the Assignat, as deliberate acts of war, knowing precisely the effect this would have on the economies which were based on these monies. The lesson came from the same people who later backed the communists and this idea of destroying a currency through watering it down was not lost on them. Ever after, the “not worth a Continental” slogan has been used by the banking elitists and their stooge useful idiots, to prop up the ancient Babylonian notion that a money made up of tokens of silver and gold was the only “sound” money. We're here to remind people that a money being fiat has NOTHING to do with it, it is WHO GETS TO ISSUE IT that is the chief and only consideration and always has been. With the issuance of money comes the FORCE to make people do anything and to keep certain people in positions of power, influence and privilege. People, WAKE UP!
and yet Walker starts with the definition "Money is that money does, that is, money; all that is money; only that is money, which performs a certain office.” As well might he condemn a horse for not possessing wings, or a cow for not raising wool. That which satisfactorily performs the money functions is good money, just as a steam-engine that performs the work required of it is a good engine. And again he says: "Money is that which passes freely from hand to hand, throughout the community in final discharge of debts and full payment for commodities."
In another place he says, that "When a man accepts money in payment for the product of his labour, he parts with that which, presumably, was capable of gratifying his own tastes and bodily needs, and takes instead, something which he does not intend or desire personally to consume or enjoy or use in any other way than as the means or medium of securing later or elsewhere that which shall satisfy his individual wants.” And again, "A sale of goods for money is only half a transaction.'' (Ibid, Walker) Again, Riegel was to say the same sixty years later, which leads to the obvious observation that money is NOT required to have any intrinsic value in and of itself.
How can both parties to a transaction be considered as "finally discharged" of debt, and "full payment" for commodities declared to have been made, if the transaction is only "half a transaction?" Walker distinctly states that one party to the transaction has received satisfaction, and the other has not; and yet declares the latter to have received "full payment! " Half a transaction means a one-sided transaction, and yet the advocates of these one-sided transactions, of this "commodity" or "hard money," tell us they are for "honest" money. "Honest" money, indeed, that declares a “half transaction" to be a complete transaction!" "Honest" money that makes a dishonest "transaction!" Kitson may be ranting against the mere nature of any money, because as Riegel would say later, money is what's used to SPLIT BARTER between buyer and seller. One side of the transaction is always the receipt of money by the seller, the other side is when the seller in turn tenders money for other commodities. Nevertheless, Kitson is onto the fundamental difficulty with “gold bug” conceptions.
The cause of all the ambiguity is confounding money with the commodity. Science most emphatically declares that money is not a commodity; governments declare that it is -or the bankers and speculators declare that it is and have the power to water it down as they like-, and hence we have this invention, ostensibly a means for facilitating exchange, becoming the dominator of exchange, the medium transformed into the result — the end of trade. The goal of such a system is to acquire as many of these tokens of exchange whatever they are made up of as one can, rather than the creation, husbandry or enjoyment of desirable goods or services to sustain life, build cultures and civilizations, extend the knowledge and understanding of mankind, etc. by trading them amongst ourselves.
An Eastern legend tells of a favoured mortal who proceeded, upon the information of a fairy, to secure a vast abundance of wealth that lay secreted beneath a palm. Notice right away that wealth is not anything capable of making a living from, just stuff, that might be traded in for more stuff through simple barter. On approaching the tree it assumed the form of a malignant giant of threatening attitude, and drove him off terror stricken. But as soon as the fairy appeared, the palm resumed its natural condition. The legend adds, that the treasure was only secured by the co-operation of the fairy, who stood guard to prevent the tree from becoming transformed into the giant. Notice again hat the word treasure is here synonymous with the term wealth as it is in most people's eyes. Therein lies a great confusion. Treasure is just treasure, stuff stored up. It might be bartered away but in and of itself cannot provide a steady living.
We have, in the term money, a simple invention for assisting trade and commerce; a mere piece of useful mechanism; a system of ready
reckoning; a method of expressing values. This is money approached from a scientific standpoint, from the science of economics. From its present social aspect, however, we have a hundred-headed giant, a monster of immense proportions, terrible and threatening. Instead of facilitating and assisting exchange, it dominates and controls it. Instead of exchange determining what money shall be used, and how, money determines what exchanges shall take place, and how often. It accelerates, diminishes and stops industry, wherever and whenever it chooses. It creates values, and demolishes them at will. In place of expressing them, it controls them. This invention, this tool, this machine, has become the product, the finished material itself. Such are the results of governmental control of money. ("To plain people it appears beyond doubt that the immediate cause of the enslavement of some men by others is money. But science, denying this, says, that money is only a medium of exchange, which has no connection with the enslavement of men. ... To say today that money does not produce slavery is as correct as it was correct fifty years since to say that serfdom did not produce slavery.' Count Leo Tolstoi, Essay on Money) Well, however all that may be, Riegel's similar conclusions decided his course on attempting to set up an alternative to government or bank issued “public” money, that he termed “private enterprise money.” It had to be issued privately between and among a mutually agreed set of traders; the common people of whatever local community.
Macleod explains very lucidly the origin of this conflict between money and the commodity. It is nothing else but a conflict between science and legislation -or between people and bankers, with lawyers and politicians in their pay-; the result of interference of governments in matters pertaining to a branch of knowledge which they can no more control than they can the motion of the tides -or as Riegel would later express it, the orbits of the planets-; and, as Mill says: "Whilst governments may determine what institutions shall be established, they cannot arbitrarily determine how these institutions shall work." That too is beside the point, as indeed governments have done and continue to try and keep what common people regard as “zombie organizations,” and “too big to fail,” corporations alive long after their practical usefulness has passed.
In jurisprudence, money is a commodity, and is considered as the absolute payment and satisfacti9n for a debt; a closing of the transaction. The commodity function is here supreme. But, in economics, a payment of money is not a closing of the transaction. A complete exchange is the "obtaining a satisfaction for a satisfaction. A piece of money is no more an economic satisfaction than a piece of paper." (Ibid, Macleod) And again, "it does not follow that a payment is the final closing of the transaction. The only legal word which denoted the final closing of the transaction, is satisfaction."
I have dwelt at length upon the commodity aspect of money, because it is this association which is the cause of most, if not all, of the world's financial troubles. It is the conflict of two opposing forces that unsettles industry periodically. Money is constantly seeking to perform its functions as the medium of exchange, and is every now and then hindered and restrained by the commodity governing it, and as a general thing the commodity is master of the situation. It insists upon asserting itself. It causes the money, or rather the material by which money is known, to leave the country, to stay at home, to circulate, to be hoarded, to be plentiful or scarce, as seems most profitable and desirable to its owners.
Commodity-money only facilitates exchange when it is more profitable for its controllers to do so than not. It assists industry only as long as it is paid — I may even say bribed — for, notwithstanding its natural functions, if it pays to stifle industry it stands ready at all times to do so. It is like the unfaithful guardian of life and property, who is as willing to aid and abet thieves and assassins, as to preserve the safety of citizens, and whose conduct is governed solely by whichever side pays him the most; or, like the mercenary traitor, who will as readily bear arms against his country as for it. Before continuing Kitson's rant against a money based on some commodity or considered as such, it is worth pointing out that the nature of the commodity does not mater. That commodity chosen to be the basis of money, by which it is “backed” can be anything, can be paper, can be numbers on account in some computer, can be anything the numerical amount of which can be counted by anyone engaged in speculations upon the prices of anything and everything using it. When Riegel turns all this on its head and says simply that the only “backing” any money actually gets is through what it buys, he means that NO MONEY REQUIRES BACKING BEFORE IT IS USED. Money then is issued by a buyer in exchange for the seller's goods or services and then is cancelled when the same buyer takes back an equal amount of said money for his goods or services. Then and only then is an economic transaction said to be completed or satisfied. The net result is that the money issued in the buy is destroyed by the same buyer who receives it back.
This is the evil, the pernicious effect, the cursed result of a specie basis. "The coinage of this basis'' says William A. Whittick, in his admirable little pamphlet on the money question, "constitutes a world-wide monopoly of money which exploits industry to an appalling extent. It alternately stimulates and paralyses industry; it is in the hands of its owners, both the life and death of business enterprise. So far as it goes, and that is but a little way, it is life, but its limit is paralysis. We carry on our business enterprises until the money gives out; but the limit should be labour and material. How the discoveries of gold in Australia and California in 1847 stimulated the world's industries. And yet the basic factors of that industry existed before these gold discoveries." (Whittick is an obscure reference)
To sum up then: We have now discovered the true origin, nature and functions of money. It is an ingenious invention to avoid certain difficulties and inconveniences brought about by unequal exchanges. It represents the inequalities in these exchanges, or, in other words, debts. We want to indicate here that this is fundamentally true, because all money is evidence of an incomplete exchange transaction, therefore the one holding any money is looking for the rest of the trading community to provide the goods and services to clear his half of a transaction made with the one who gave him the money for something he had for sale. But beware of a likely canard springing from the “gold bugs” who will say that precious metals are not indications of debt. But one cannot have it both ways; having one's gold and spending it for what one really needs to maintain one's life. Are precious metals per se money? Or has it been that tokens made of these metals were used as money? As is obvious, precious metals are commodities that have other uses besides as tokens used as money, therefore per se, they are not strictly speaking money in the same sense that mere “stuff” is not wealth. Difficulties in the subject of economics have arisen because of sloppy or unreasonable associations of words with concepts in people's minds. A man with a hoard of gold might sell it to someone intent on using it in the manufacture of jewellery or electronics. In these forms that gold would certainly no longer be money, because money has a numerical association whereby it is used in trade. A token made of a weight of silver or gold (or platinum or something else) with some numeral inscribed on it indicating its weight or its association with a cypher of money, numerically designated for use by a bookkeeper or some system performing the same function, to register trades, is taken for granted to be a form of money. But it is first and foremost a commodity and therefore involved in any barter transaction in which it participates. If one is not interested in hoarding gold, if one is using it as money, to complete a transaction involving other more useful goods or services, then it represents debt in exactly the same sense as would money represented as a paper note. Do not be misled: there is no fundamental difference at all.
In order to avoid certain difficulties and inconveniences brought about by unequal exchanges satisfactorily, money must be capable of representing and expressing precisely the exchange relationship of one commodity to another, or, in other words, values. Now, since values are ratios between different quantities expressed numerically, it follows that the money must consist of some system of numbers by which these ratios are expressed. By bringing all commodities to an exchangeable equality, we find the numbers representing their exchange proportions. By finding the least common multiple for these numbers, and dividing it by each, we get the value expressions of all commodities in simple numbers. Since these are whole numbers, unity may be adopted for the common unit, and we have at once the expressions of the purchasing powers of all commodities in terms of an invariable unit. As we said, this would all be possible, or could be within a Valun Exchange Network of VEN as long as all the numbers were expressions in Value Units, not other “public” currencies or even in precious metals.
The general adoption of this plan will enable anyone, at a glance at the daily market reports, to see the prices of any commodities. These units recorded fractionally, singly and in multiples on good paper, issued for debt and made redeemable in all commodities, constitute money in the strict scientific sense. Money thus becomes, in truth, the medium of exchange, not the end. Its units being invariable, it becomes a perfectly safe and scientific standard by which to reckon deferred payments. By its very nature it cannot be a commodity. A commodity is that which, by its consumption, use or operation, satisfies human desires. A commodity is the end desired by exchange; money is only a means to that end, the mechanism by which exchanges are effected. A sale of commodities for money is, therefore, not an exchange. Exchange is then only in a transitional state; it is incomplete. It is completed only when a purchase of goods for the money takes place. A purchase is the complement of a sale. The two acts, by the same person, with the same money, is a complete exchange. The end sought in exchange is, therefore, the acquisition of commodities, not money. It is to satisfy their wants and desires, that men trade together. This paragraph contained one of the most important concepts in all of economics. Without understanding this simple basic concept of what actually constitutes a completed transaction in trade, nothing of any further complexity could be understood; if you didn't get it, go back and read it again until you do!
The desire to acquire and hoard money is a perversion of the natural use of things. Money is made for use, for exchange, to transfer, to spend as currency, to be kept running, moving, not stationary. Money is not a standard of value, nor a measure of value. It expresses values, it registers purchasing power. Finally, as money is the representation of commodities — the symbol of the satisfaction which their possession affords — it is redeemable in all commodities alike, without preference to any. We can now see the unscientific character of that theory, which is so extremely popular among the advocates of protection, the disciples of the old mercantilists, the theory that wealth consists of money and that the end of trade and international commerce is the acquisition of money — a theory that declares the shadow of a thing to be the substance, the means, the end; the machine its produce. All of this would have been perfectly well understood by Riegel and would have met with his satisfaction. He may have even read Kitson, but unfortunately we have no way of really knowing. Suffice it to say, we have here a complete concord between these men as to their basic ideas and fundamental concepts.
Under a scientific system this absurdity, together with those others, viz., "the balance of trade" and the "standard measure of value," will disappear. The true end and aim of commerce, namely, the acquisition of useful commodities, will then be pursued by all, and the world will cease its mad pursuit of this ignis fatuus. Then industry will take its natural place and control finance; not, as now, be led in chains as its tool and slave. Then panics will be possible, only when men refuse to labour or nature ceases to yield her treasures. Then industrial warfare will give place to industrial cooperation, and men will cease to be murderers in business, whilst professing a religion of peace and good will to all.
In spite of the already too-lengthy discussion on the subjects of standard and measures of values, I must, at the risk of taxing the reader's patience to the utmost, touch once more on a phase of the question which some may be still in doubt over. Recent experience upon the platform convinces me that the fallacy underlying the specie basis -basing a monetary system on tokens made of precious metals, expecting them to circulate as money-is not to be destroyed by a sudden or unexpected assault, nor by an exposure of merely one phase of the question. It must be exposed from all sides in order to destroy it in both root and branch. Superstitions, as “gold buggery” clearly is one, are among the most persistent and difficult matters to completely eradicate from mankind; as difficult as idolatry and substance addictions of all kinds. But just because they may persist among a certain minority does not mean we cannot continue to refer to them as superstitions, idolatry and addictions. Facts are always facts: the law of identity proves them to be real.
In the writings of the most advanced thinkers, I find the statement made again and again, that money is inconceivable unless based upon some commodity selected as a permanent "standard of value," as it is called; and there seems to be a general agreement regarding gold as the "natural standard." Regarding silver, platinum, palladium or anything else is just the same as gold.
In order to demonstrate the difficulty under which these writers labour, I will repeat an illustration previously given; but before doing so let us fully comprehend what the money problem is. Economists often fall into an error by supposing a society in which commerce and exchanges are about to commence and where the exchange relations of commodities, being unknown, must be discovered by selecting one commodity and comparing all others with it, i. e., "measuring" them by the standard selected. This I have already shown to be impossible. Exchange relations are not discovered by bringing one thing alongside another. It is the wants and desires of society that establishes these relations, and no single commodity can possibly do so.
We must remember that the system of barter existed prior to the use of money, and that this invention has for its object the remedying of the difficulties attending barter. Riegel described this function of money as splitting barter perfectly in half between buyer and seller.