## Wednesday, January 21, 2015

### #25.10 A SCIENTIFIC SOLUTION OF THE MONEY QUESTION – Arthur Kitson – Part 10

CHAPTER VIII. (Part 2)
MONEY.

We must suppose that at the time money is introduced, the exchange relations of commodities are already established through the system of barter. The prime function of money is to express these relations as it finds them and to intervene merely as a medium of exchange. Suppose, then, we find the following goods exchanging in the proportions named:

Five quarts milk for one pound butter.
One yard cloth for twenty-five quarts milk.
Two ounces silver for one yard cloth, and
so on.

The advocates of a standard assert that these commodities must all be brought to the terms of the denomination of some one commodity in order to ascertain and express their values. On the contrary, I assert that it is physically impossible to bring commodities themselves to terms of any common denomination. It is merely their exchange relations that can be expressed in terms of a common language, and that language is numbers, and numbers only. This is another key Riegel concept! Standard advocates fall into the error of supposing value to be "possessed by" or to "inhere in" commodities, and imagine that all goods contain various quantities of this thing or substance called "value," of which a given weight of the standard contains a fixed amount; and yet, when defining value, they are careful to speak of it as being only a relation between two quantities or powers. But let us see what the use of a standard achieves. From the relations of the goods given above, we may raise them to an equality with the highest, viz., one yard cloth, thus:

Twenty-five quarts milk = five pounds butter = one yard cloth = two ounces silver.

Now let us select silver as our standard of comparison.

Then we have:

25 quarts Milk or 5 pounds Butter = 2 ounces Silver or 1 yard Cloth

If we imagine one ounce silver divided into 100 equal parts, we have the following prices for our commodities :

1 quart Milk = 8/100 or 8 cents.
1 pound Butter = 40/100 or 40 cents.
1 yard Cloth = 200/100 or 200 cents.

All that we have accomplished by this comparison is to find a common expression for the exchange relations of these goods; and this we see is a numerical expression. For instance, the value relation of 1 quart milk to 1 pound butter is 8 to 40, and 1 pound butter to 1 yard cloth as 40 to 200.

Now the dividing line between ourselves and the advocates of a commodity standard, or unit of purchasing power, begins at this point. The latter contend that these numbers stand for certain pieces or weights of silver; and hence a certain definite weight of silver or gold may constitute a permanent standard of value or purchasing power. On the other hand, I contend that these numbers represent merely the purchasing powers contained by, or rather conferred upon certain weights of silver at the particular time the comparison is made.

What is needed in a monetary system is not a fixed weight of any concrete substance, but a certain invariable unit of power which is attached to a definite weight of some commodity; hence one commodity is as good as another for this purpose whether wheat, cotton, sugar or gold. Note that what's missing from this is TIME, which is what Riegel included in his basic definition.

Neither an ounce of silver nor an ounce of gold contain a “fixed quantity of value.” They merely have conferred upon them, by reason of their utilities, powers of purchasing other commodities, but these powers vary continually according as their marginal utilities vary from time to time. Since they are commodities themselves, they are at the mercy of speculators and others with a special interest quite apart from their purported use as money.

For this reason no commodity, whether it be gold, silver or the diamond, can be a permanent standard of purchasing power.

Referring to our former example: Suppose we regard the term dollar as the equivalent of the purchasing power of one ounce of silver at the time this comparison or price list was arranged, but make it in no wise dependent upon the commodity, silver, thereafter; the dollar becomes an absolutely invariable unit of purchasing power, viz., the equivalent of that power which happened to be attached to an ounce of silver at one particular time and place. And no matter how silver may fluctuate thereafter it cannot affect the purchasing power of this ideal unit — the dollar. NOW, ladies and gentlemen, Kitson has finally coincided with Riegel! He has finally acknowledged TIME as a key component of establishing a truly independent means of determining the purchasing power of all other commodities.

My contention is that the purchasing power of a definite quantity of any commodity, say 25 grains of gold on a given day, say January 1st, 1894, may be taken as equal to the unit of purchasing power, from which to start prices, but that the purchasing power of this quantity of gold cannot, scientifically speaking, be recognized as the unit in July, 1894, or January, 1895, or in fact at any time thereafter, since definite and invariable powers are not associated with definite weights or quantities of commodities. Of course not since the value speculators shall attach to the same article will have changed between 1 January and 1 July of the same year or 1 January of the following year. It can only be set to a specific date and some non-commodity, or something having as little intrinsic value as possible; a piece of printed paper, represents it in trade.

Purchasing powers, like values, are abstract relations not concrete magnitudes. They are purely ideal -we regret his poor choice of a word to describe what Riegel called his Figure 1-, and vary as our wants and desires regarding all objects of utility vary. To measure our desires for things generally, seems at first sight, impossible, yet it is possible to give numerical representation to them by the differences in the quantities of the things we are willing to give for those we desire.

A desire for a certain thing at one particular time may be represented by 1, and for some other thing at the same time by 2, and so on. Thus we may establish a numerical relationship among all commodities, our unit being the desire we had for a given thing at a given instant of time. But the desire is not possessed by the thing itself, nor is the intensity of the desire for the thing the same for all time. The numerical relationship being once established, our monetary system should be such that prices can be affected only by changes in the demand for and supply of commodities themselves, and not by reason of any change in money. At this juncture Kitson is running in parallel with Riegel's concepts of money. We'll see if the course holds.

The relations established by the comparison of the goods selected to one special substance, viz., silver, are identical with those arrived at by the method I have previously given. Thus we have;

Milk 25 quarts
Butter 5 pounds
Cloth 1 yard
Silver 2 ounces

The least common multiple of these numbers is 50. Dividing this by each of the above numbers, we find the values of those commodities in terms of one common language, viz., numbers.

1 quart Milk to 1 pound Butter to 1 yard Cloth to 1 ounce Silver as 2 to 10 to 50 to 25.

We previously saw, however, that when compared with silver the relation of

1 quart Milk to 1 pound Butter to 1 yard Cloth is as
8 to 40 to 200 which is the same as 2 to 10 to 50.

So far, then, the results are identical. But it cannot be too often repeated that these numbers merely represent the proportions in which the purchasing powers socially conferred upon these various commodities stand to each other, and do not remain the same in relation to any particular commodity for very long. That's because they are commodities and subject to market influences and speculation.

Those who think the practical difference upon society between a commodity standard of purchasing power and an invariable ideal unit, such as I have described, of little import, have only to consider the case of a farmer mortgaging his farm in 1864 for say, \$10,000, and having to repay the amount in 1894. Suppose his principle product to be wheat. In 1864 wheat sold for more than \$2 per bushel; hence the equivalent of the money borrowed, in terms of the farmer's product — wheat — was then, say, 5,000 bushels. Had he returned the loan the same year this quantity of wheat would have sufficed to procure him the \$10,000. In 1894, however, wheat is fifty cents per bushel. To repay his loan, the farmer must now produce 20,000 bushels, or four times the amount of the loan when it was made, besides having had to pay interest during the past thirty years, which in itself would be the equivalent of, at least, three times the original loan. In other words, by borrowing the price of 5,000 bushels of his own product in 1864, in thirty years after, paying off principal and legal interest, he will have paid fully seven times more than he borrowed, reckoned in his own coin — wheat. While this may, in part, be due to a cheapening of production, it certainly is not entirely due to it.

The appreciation of the standard commodity, gold, is as much the cause of low prices as labour-saving inventions. In other commodities, such as cotton, these differences are more marked. If money is to be used as a standard of deferred payments, it must be invariable in itself and should merely register fluctuations in commodities. In other words, it should not profit anyone to make an investment in money, intending to hold it for a period of time and then selling it at a profit. Those screaming that the present commodity dollar should yield higher interest intend to be paid for merely holding money, something that is equivalent of getting something, added purchasing power, for nothing. This practise, though widespread and encouraged, is dishonest and frankly immoral! It would not be possible to have your cake and eat it to using Value Units as advocated and described on this blog.

In asserting the necessity for connecting the element of time with any concrete standard that may be chosen as the unit of purchasing-power, we are only seeking what everybody recognizes as an essential condition with all standard units of measurement, viz., invariableness. The English standard of length, for instance, is the distance between the centres of two gold plugs in a certain bronze bar, the bar being at a particular temperature, viz., 62 degrees Fahrenheit. The one element or condition to which metals are unavoidably exposed which causes variations in their volume, viz., temperature, must be taken at some arbitrarily fixed point. Similarly with purchasing-powers. These fluctuate in the course of time from supply and demand, and as we are unable to fix the conditions under which values remain invariable, all we can do is to make our unit or standard the equivalent of the purchasing power of a certain weight of some commodity at a given time from which to start prices, as previously explained. The introduction of this element of time abolishes the permanent commodity-standard at once, and gives us an invariable ideal unit, in terms of which the fluctuations of all commodities can be registered or expressed with mathematical exactness. BRAVO! Quite so!

May we not in all sincerity inquire in the words of Berkeley, "Is not this the true philosopher's stone?" Indeed, sir, and sixty years or so before E. C. Riegel.