SECOND LESSONMONEY
Whatis Money? and what are its functions? Money is the medium of trade, its denominations the language.
Resting on the surface of Economic phenomena, Money and Money terms spread over the whole of the Economic area. All subsurface phenomena in Economics are measured in trade by Money units; the details of trading transactions are discussed and recorded in Money terms.
Money terms vary with localities. In the United States, Money talks in terms of “dollars;” in Great Britain in terms of “pounds sterling;” in France in terms of “francs;” in Germany of “marks;” elsewhere in local terms too numerous for other than encyclopedic description. But the value measurements that Money makes of commodities in the processes of trade are everywhere, at any given time, practically the same.
For lack of stability those measurements do vary from time to time with confusing effect. To compare them with measuring rods for length, breadth and thickness, it is as if yards, feet and inches were constantly contracting and expanding with reference not only to the magnitude of measurable objects but also to one another. Precisely in that way does Money in fact fluctuate. It always has, and unless scientifically standardized, it always will.
Nevertheless, whatever the fluctuations and local discrepancies of Money may be, it everywhere talks, when its language is translated, to the same general Economic effect at any given time. Stabilized, as itmight be, it would talk to the same general Economic effect everywhere and all the time.
What language is to thought, Money terms are to trade. The trading transactions of the whole world are effected by means of Money standards and in the language of universally interpretable Money terms.
Conventionally defined, Money consists of coins minted by governments from precious metals more or less alloyed. Those forms are supplemented, however, with subsidiary forms commonly known as “currency.”
There is an Economic theory that metal coins alone are Money, paper currency being but promissory notes redeemable in coin. This theory is useful for testing Money media by coinage standards. But with reference to nearly if not all purposes of current trade, the intrinsic value of the Money piece is of slight Economic importance, or would be if Money were stabilized.
What counts in Economic measurements is Money denominations—Money language rather than Money pieces. For in the world-wide processes of trade, only a slight proportion of either metal coin or paper currency passes from hand to hand. Nearly all Money measurements are entered in books of account; and in these the debits and the credits so nearly offset one another, by and large, that the difference as a whole is too slight for consideration in passing down from the Money surface of Economics to the basic facts. A common and impressive exemplification is afforded by clearinghouse statistics. These show that the enormous banking transactions in Money terms which merge at the clearings daily, are balanced off with a trifling percentage of tangible Money.
Let the fact be emphasized then, that in defining Money as the medium of trade, Money terms ratherthan Money forms are to be understood as the trading medium.
When a customer at a retail store buys a supply of groceries, his payment may be made in Money pieces, either metal or paper. Yet it may be made instead with a check drawn against his bank balance, or through a charge to his account in the retailer’s books. If paid in Money pieces, either at the time of purchase or later, some if not all of those pieces will go to the storekeeper’s bank and be credited to him in Money terms on the books of the bank. If the payment be made by check, the amount of the check will be entered in the storekeeper’s bank account as if it were a payment in Money pieces instead of Money terms. Be such transactions as they may, however,—cash payments or check payments or drafts or promissory notes—tangible Money plays on the whole but a small part.
From purchases by customers at retail stores back to wholesalers; back of wholesalers to manufacturers of finished products and of unfinished products and of tools and of every other kind of merchantable object; back to land-owners for the sources of supply and the sites for production and delivery; back to farmers, to miners, to transportation agencies, to a vast though scattered army of wage-workers; through many a complicated series of accounts at stores, factories, mines, real-estate offices, railway and steamship offices, banks, clearinghouses—must we wend our way if we would investigate the processes of trade in detail. Yet only in slight degree do those processes involve the use of Money forms. Though coinage standards play their part, almost all trading transactions are made in Money terms and not with Money pieces.
In the process, then, of making a living, mankind trades commodities in terms of Money rather than inits forms, doing so principally through financial accounts. Peering into the details of those accounts (as professional accountants and other business specialists must often do when examining the particulars of their respective specialties), however useful this may be within the limits of the specialization, is always futile and often confusing or misleading for purposes of Economic study or investigation as a whole. In Economics the purpose is not to understand the technical details of business specialties simply. It is chiefly to relate those details to one another by determining their respective Economic categories so that the whole subject may be reasoned about comprehensively.
Some business specialties may necessitate a knowledge in detail of the physical characteristics of sugar, for instance, or of cotton; but what an understanding of the science of Economics requires in such particulars is an intelligent grasp of the nature of sugar or cotton with reference to fundamental Economic categories—whether they are human, or natural, or artificial,—and to what extent, therefore, they are Economically related to all other commodities in the realm of trade. For into one or the other of those three categories, all the myriads of Economic details assemble themselves.
For purposes of Economic specialization, this assignment of details to categories is not enough; but without it no specialization is dependable. Some such identification of particular facts with reference to their fundamental differences or identities, is absolutely necessary for accurate observation of Economic phenomena and clearness of Economic thought; and are not accurate observation and clarity of thought the prime requisites of Economic study?
Not to make those identifications and differentiationsis to turn Economics into the hopeless mixture of “masses of particular unexplained facts” which John Morley deplored as characteristic of a certain type of Economic science. “Scraps and pickings of reality” are worse than useless in any study of Economic science unless harmoniously classified according to their respective fundamental characteristics.
This comment does not mean that Economic details are to be ignored except for classification, even by non-specialists. Far from that. It means that they are to be thoughtfully considered and accurately classified for further and comparative consideration. To illustrate: Mankind must be regarded as a class or category in Economics; but not according to personal or individual capabilities, idiosyncracies, or social, business, or legal status. To the business specialist, the personal qualities of an associate or assistant are important; but Economics as a comprehensive science, the science of all “mankind making a living,” knows those special distinctions only in a secondary sense. It is concerned primarily with the individual man only as a unit in the human mass—only from the fact that he is in the human category and not in one or more other Economic categories. So of all Economic facts. To study Economic details without reference to Economic generalizations might be likened to studying an alphabet without reference to language, or numerals without reference to mathematics. Economic problems are not problems of how one individual may make a living at the expense of others. Such problems belong in the plundering pursuits. In Economics the basic problem is how all may make a living at the expense of none.
To that problem business details give no clew, unless the details be assigned to fundamental Economic categories. Piling up details without assigning themis, as Henry James the Elder wisely expressed it, to “sink the truth in endless confusion.” The last person in all the world from whom to get the basic facts of Economics is the business specialist, for he habitually limits his observations to his own specialty. Perhaps, however, a certain type of Economic teacher may be equally untrustworthy in that respect—the teacher who, though he imitates the physical scientist in devotion to details, disregards the physical scientist’s fidelity to the relations of cause and effect.
On the Economic surface we have the category of Money. To the wage-worker Money is the medium for trading the commodities he helps to produce for those he wishes to consume. To the merchant, however, or the manufacturer, or other Economic specializer, Money presents also a variety of minute details for expert study. The business accountant, for example, must familiarize himself with numerous details in connection with Money in its minute relationships to his specialty. He might very likely confuse facts Economically different, yet as a special business matter practically identical—the Money measurement of a natural mineral deposit, for instance, with the Money measurement of its artificial equipment. As an accountant in that specialty he would be right in doing so. Or, in slavery days, for another instance, an accountant might properly have classified the Money measurement of a human chattel with that of a domesticated horse or a constructed house. He also would have been right; for, as an accountant, he would have been dealing with a customary classification of private property; and not with Economic science comprehensively. It is doubtless specialty work of such kinds that has involved the science of Economics in so much confusion, especially among advanced studentswho are prone to identify business conventionalities with Economic normalities.
As a science, Economics cannot make its categories according to conventional maladjustments. It must make them according to essential differences. These admit of no categorical identification of mineral deposits with mining machinery, or of human beings with domesticated animals or buildings. Such classifications are as absurd in Economics as identifying sun and earth would be in astronomy, or bone with brain in anatomy.
The science of Economics—that is to say, the science of Business in the broad social sense in contradistinction to the narrow private sense—neither requires nor permits such classifications as slaves with domesticated animals, or mining machinery with natural mineral deposits. It is obedient to the ancient but still vital maxim of philosophy that things which are essentially different must not be mixed nor things that are essentially the same be separated.
Essentially different things in Economics are indeed confused by Money, which knows no difference, except in degree of Money measurement, between slaves and cattle, or mineral deposits and mining machinery. As the medium of trade, Money must measure the values of everything tradable; and custom may make tradable objects—human beings, for instance,—which in the science of Economics are no more within the normal boundaries of trade than are transfers by theft.
Whether we think of Money as tangible coin, or only as the Money signs and symbols of account books, Money is not a basic fact in Economics. Mankind cannot live upon Money. It is neither eatable nor wearable. Nor is it shelter. Likewise of Money terms. Money is a secondary Economic factor—a representative of value, whereby the relative desirabilityof commodities is measured and expressed in trade. It is therefore the comprehensive surface-fact of Economics beneath which the basic facts must be sought.
In other phrasing, Money is that secondary category in Economics which comprehends every kind and form of medium for trading commodities in the world-wide process that we descriptively characterize as “mankind making a living.” Mankind being a basic Economic category, and the process of making a living being the Economic human necessity and purpose, Money can have but one comprehensive significance in Economics. Be it in the form of coin, or in the form of paper currency, or in the form of entries in books of account (where it appears only in name and arithmetical denominations), it is the universal medium and Economic measuring rod of exchanges or trade.
Whether one makes Money or not depends, as a rule, upon which side of his accounts in ledgers the Money balance appears at final accountings. It is Money in this sense that goes farthest to justify the superficial definition of Economics as the science of making money.
We only skim the surface of Economic phenomena, however, by coming to an understanding of the nature and the function of Money. Money is only one of the secondary categories which must be identified and properly related in any thoughtful study of Economic science. Below that financial surface are phenomena which Money merely measures and compares. The first of those underlying phenomena is Trade, for which Money is the medium and upon which our attention must next be concentrated.