MONEY AND VALUE.
MONEY AND VALUE
AN INQUIRY INTO
THE MEANS AND ENDS OF ECONOMIC PRODUCTION
WITH AN APPENDIX
ON THE DEPRECIATION OF SILVER AND INDIAN CURRENCY
BY
ROWLAND HAMILTON
f
^!L I BRAKY
UNIVERSITY OK
MACMILLAN AND CO
1878.
[The Right of Translation and Reproduction is Reserved.}
LONDON :
R. CLAY, SONS, AND TAYLOR,
BREAD STREET HILL, E.G.
'30
CONTENTS.
PAGE
INTRODUCTION . ... xiii
CHAPTEE I.
(Money.)
THE PRIMARY USES OF METALLIC MONET.
1. Money 1
2. Scope of the inquiry 3
3. The nature and basis of value 4
4. Money is that which confers a special power of choice . 6
5. The value of the precious metals rests chiefly on their
specific use as money rather than as ornaments ... 8
6. Metals which are more suited for general purposes are
less fitted for money 10
7. The precious metals have a highly generalised value, and
serve to generalise the values of all other commodities 13
8. " Law " of demand and supply : irregularity of it ... 14
9. How the precious metals come into use as money ... 15
10. Dangers of waste arising from superfluity, to which the
precious metals are not exposed 17
11. The value of money correlated with the uncertainties of
natural production 18
12. The primary uses of metallic money 19
13. Why a " purchasing power" is held in reserve .... 19
Why it should be vested in a costly substance .... 20
14. Limit of the primary uses of money 21
15. Money represents general rather than special interests . . 22
16. tl Buying cheap and selling dear " 24
17. Extended uses of the precious metals 26
18. How they become a general " common measure '' of value 27
vi CONTENTS.
19. How metallic money further specially aids enterpris
jewels 28
20. The need for such aid to commercial experiment ... 30
21. Stability of value indirectly arising from indestructibility
of the precious metals 32
22. Increased quantity leads to decreased value of money . . 34
23. Limit to the transmission of metallic money 36
24. The several kinds of uses of metallic money 38
25. Difficulty of speedily monetising treasure : Spain ... 39
26. The " law of average " 41
27. High degree of security attained under it 43
28. Illustration " loading " on the premium of insurance . . 45
29. The " limit of perfect recovery " 46
30. The limited scope of authoritative control over the uses of
the precious metals 47
CHAPTER II.
(Money.)
EXTENDED USES OF METALLIC MONEY AND OF SUBSTITUTES
FOR IT.
1. Contrasted theories regarding metallic money .... 51
2. Apparent permanence of ancient weights used for money
(note 1) 55
3. Confusion and instability of artificial standards of value . 61
4. Secondary uses of the precious metals as money. ... 63
Kecognisibility an important factor in purchasing power . 65
5. Modified use of money in aiding subdivided labour . . 66
6. The value of substitutes or " tallies " for money depends
solely on local demand and supply 69
7. As long as metallic money circulates with its " tallies " the
value of the whole is maintained 72
8. Undue export of the precious metals (if not arising from
actual poverty) quickly readjusted . . . . . . . 73
9. Consequences of a rise in the value of metallic money . . 76
10. Illustration : supposed change in a measure of length . . 80
11. Difficulty of determining the value of money because it is
itself taken as the general measure of value .... 83
12. Conditions which conduce to the issue of substitutes for
money .... 84
CONTENTS. vii
PAGE
13. Direct effect of an over-issue of substitutes 86
Substitutes and metallic money contrasted 88
14. Substitutes once issued will not " flow out " of circula-
tion 88
15. How substitutes, though of no intrinsic value, are costly in
use 91
16. Abuses to which the optional issue of substitutes is
liable 93
17. Effects of rising and falling prices contrasted . .... 95
18. Aggravated fluctuations of an isolated standard .... 98
Their ill effects on local industry 100
19. The relative cost of production in different countries is not
governed by money 101
20. The potency of the effects of forced issues of substitutes
for money 103
21. Illustrations of the dislocating effects of sudden changes in
the value of money 106
22. Recent experiences in the United States 109
And in France Ill
23. Definite weights of the precious inetals afford the best
practical basis for comparing values at different epochs 112
24. Application to the apprehended increase in the supplies of
the precious metals 113
25. Supply as affecting the value of the precious metals . . 115
26. Prospective augmentation of supplies 117
Natural mitigation of their effects 118
27. General observations on the production of gold .... 119
28. silver ... 122
29. The comparative yield in the mine must govern ultimately
the relative value of gold and silver 124
30. Gold and silver stand in no fixed ratio of relative value . 124
31. Special and " intrinsic " value of metallic money . . . 128
" Friction " opposed to the exact adjustment of their value . 132
32. Summary of Chap. I. and II 133
33. Limits of the theorem 139
"Status" 141
Commercial monopolies and commercial wars 142
viii CONTENTS.
CHAPTER III.
(Value.}
ON THE NATURE OF EXCHANGE VALUES PROPERTY AND
CAPITAL.
PAGE
1. The British pound 146
2. Differences between value expressed in money and that in-
herent in money itself. 147
3. Fallacies arising from confounding the nature of these
several kinds of value 150
4. The nature of the exchange value of different kinds of
property 153
5. Why certain kinds of valuable property are not a fit basis
for money 156
6. On the nature of property yielding a periodical income . 158
7. On the risks to which such property and the securities
based on it are severally exposed 161
8. " Value " and " capital" 164
9. A just system of interchange needful for all forms of civi-
lisation 165
Economic rent 166
Qualification as regards labour 167
10. Value in use, and value in exchange 168
11. The physical basis of the value of utilities of various kinds 171
1 2. The aggregate of money value is made up by manifold inter-
changes 174
13. The exchange value of superfluities 175
14. Contrasted nature of related values in exchange . . . 177
15. Capital. Capital consists generally of the requisites neces-
sary to support life. Mr. Mill's definition discussed . 179
16. "Fixed" and " circulating " capital : objections to these
terms 182
17. " Labour " and " capital" are factors constantly variable 184
18. Only well-directed labour can make capital reproductive 186
19. The relative efficiency of labour the chief source of wealth
and power 188
20. Difficulty of applying capital beneficially to a new
country 189
21. Commercial use of the word u capital" 192
22. Summary of the foregoing propositions 193
CONTENTS.
CHAPTER IV.
(Value.)
CONDITIONAL OWNERSHIP CREDIT AND BANKING.
PAGE
1 . Credit : a further generalisation of Capital 200
2. The nature of the relative rights arising through credit.
Jus in rem, and jus in personam 203
3. The nature of the rights and duties associated with loans :
risks 207
4. The " profits " of productive industry 211
5. Profits specially associated with the risks of final adjust-
ment 213
6. Interest considered as a charge on productive industry . 216
7. The distinctive function of bankers 222
8. The nature of the security which should be conveyed in a
bank-note 227
Scotch banks . 228
Notes should be the final reserve 230
9. " Cash," " cash deposits," and cheques 234
Bills not the efficient cause of a rise in prices 239
10. The distribution of credit 240
And its recompense 243
11. General demand governs production though it is not the
efficient cause of it 246
12. The Bankers' clearing-house 247
Magnitude of the amounts passed through it 248
The nature of the adjustments effected ....... 249
13. The inferences to be drawn from its operations .... 256
Adequacy of existing resources of capital 257
14. The increment of capital 259
Made only by gradual savings 263
15. The " creation " of capital 263
Foreign loans 264
And banking agency 265
16. Foreign exchanges 267
How regulated by bullion 269
The more extended interchanges of capital thus effected . 272
17. The uses of metallic money thus shown to be the same as
those first theoretically indicated 274
CONTENTS.
General Conclusions :
PAGE
Necessary and " optional " production 279
Economic conditions of our own country 282
Concurrent wealth and destitution 286
Distribution 288
Radical fallacy of monopoly 288
The efficient adaptation of labour 294
Thrift 297
Economic aspects of " sanitation " 298
national education 301
leisure 305
Administration 307
Pauperism and population 309
APPENDIX I.
SOME FURTHER REMARKS ON LOCAL AND GENERAL CURRENCY.
1. The currency of the United Kingdom 318
2. Fluctuations in the amount of circulation 321
3. The cost of a metallic currency 323
4. Silver and bronze currency tokens 324
5. The bank's reserve of gold fittingly held in common both
for home and foreign trade 326
6. An excess of gold an uncertain banking asset 328
7. The rate of interest as affecting the transit of bullion . . 330
8. The charge of seignorage on coinage . . 332
9. The cost of maintaining reserves of bullion 334
10. Silver as a medium of international exchange .... 335
11. The abuses of credit 336
12. Manias and panics 341
APPENDIX II.
THE DEPRECIATION OF SILVER AND THE INDIAN CURRENCY.
1. Changes in the relative value of silver no new phenomenon 346
2. The total stock or present supply of gold and silver
throughout the world cannot be estimated .... 347
3. Changes in the currencies of the United States and of
Fra *ce 348
4. Natural changes affecting the supply and the general uses
of gold and silver 351
CONTENTS. xi
5. Considerations which govern the transport of coin or
bullion from one country to another 254
6. Exceptional causes of demand for Asiatic products in
Europe since 1848 355
7. The consequent movements of bullion 356
8. Exaggerated enhancement of prices 357
9. Costs of transit as affecting the relative values of gold and
silver 358
10. Commercial excitement and consequent reaction since
1870 360
11. Introduction cf a gold currency in Germany : and conse-
quent increased supply of silver 361
12. The practical lesson taught by the " scare " in silver in
1876 362
13. No apparent reason to anticipate a falling-off of Asiatic
demand 363
14. Natural mitigations of a decline in the value of metallic
money 365
15. The ratio of value of the precious metals may be antici-
pated and declared, but cannot be fixed by a govern-
ment 367
16. Indian coinage 370
17. The proposed introduction of gold into the currency . . 372
18. The expedient of coining both metals independently . . 376
19. Present uncertainties 376
20. On the proposal for a general fixed ratio 378
21. Independence of Asiatic traffic in the precious metals . . 379
22. Movements of bullion in India , 381
23. The ratios of value will best be worked out by free
competition 382
24. Relative cost of production must ultimately govern the
relative value of gold and silver 384
Postscriptum : The "Bland Bill" : Indirect adjustments
of traffic . 387
Lin u
I MYK I.'SITY '!
INTRODUCTION! 'A Li K< LA.-
THE activity of our varied industries and the vast
extent of our commerce have always been a source
of reasonable pride in this country : and now more
than ever justly so : for without these aids to the
support of our population these little islands could
hardly expect to maintain their position as one of
the great powers which influence the destinies of
the world.
It is strange that notwithstanding this sentiment
so little is generally understood of the conditions
and principles which govern the true organisation
of industry. Many works have been written of late
years, some very superficial, but some with very
great ability, showing " how things are done in the
City ; " indeed during the recent period of spurious
financial excitement an amazingly intimate acquaint-
ance with the mere forms of business was to be
met with in society which could not be supposed to
have a very discriminating interest in productive
undertakings. By an error very characteristic of
the time, purely technical knowledge was taken to
be pre-eminently practical. Instruments which
INTRODUCTION.
can only be safely used by those who know how to
use them, and why and when they should be em-
ployed, were perverted in a way which led to much
loss, misery, and demoralisation, and with an equal
want of wisdom and discrimination, the blame was
thrown upon the forms or instruments, rather than
upon those who had misused them through ignorance,
recklessness, or flagrant dishonesty of purpose.
One of the main objects of the present work is
to explain something of the true nature of that
which has to be done, and the responsibilities which
must be incurred, by those who would earn a share
in the gains of beneficial industry. It does not so
much concern me to show how interest can be
obtained by putting money in a bank, as to afford
some insight into the nature of the varied kinds of
work which must be successfully carried out before
any return can be secured at all, or apportioned to
those who have severally contributed to its pro-
duction. I do not by any means disparage the
services of those who have lucidly explained the
mechanism of finance, but it is well sometimes to
direct popular attention from forms to the realities
which lie behind them. This is, in its degree,
nothing more than the old alternation between the
realistic and the nominal conceptions of things
which have in turn done so much to extend and
duly to define the range of our knowledge.
It would be vain to attempt to make this subject
popular in the common acceptation of the term, but
I have spared no pains in the endeavour to make
INTRODUCTION.
my exposition as clear, as concise, and as free from
technical language as is consistent with the due
consideration of all its manifold bearings. The
subject is necessarily somewhat dry and complex ;
as far as possible 1 have avoided overlaying it with
details except where it seemed well to introduce
them for the purpose of illustration, or where ques-
tions of permanent interest turned upon the points
thus specifically referred to. It may seem needless
to the reader, as indeed it did at one time to myself,
to combine the notice of metallic money so fully
with the inquiry into the actual work of production ;
but so many fallacies, so many truths half expressed
and wholly misunderstood, are associated with the
precious metals, that I found my task could be more
thoroughly accomplished by keeping this branch
of the subject in mind throughout. For it may thus
most clearly be shown both what such money can
and what it can not do ; and this is at present of
the more consequence because the large increase in
the supply of it, which is now attracting so much
attention, will cause perturbations that will more
or less affect many branches of industry, and ques-
tions regarding it are sure to be intruded with an
exaggerated sense of their importance into regions
far beyond and other than those which are actually
affected by changes of this description. I have
therefore given a somewhat unusual prominence to
the discussion of specific money, even in matters
which otherwise might as well have been considered
without any direct reference to it, although my
xvi INTRODUCTION.
object has rather been to demonstrate how special
and limited are its functions in that work of pro-
duction which is of real importance to the welfare
of mankind.
The abuses to which our industrial system is
subject have only been very casually touched
upon. To elucidate the true uses of money and of
credit will afford the most effectual remedy for
those perversions and hallucinations which have so
repeatedly led to the most lamentable waste of our
national resources. If those who are capable of
taking an intelligent interest in the subject, and
who are in their degree the leaders of public
opinion, can more adequately realise what are the
essentials necessary for the success of any under-
taking, the conspicuous absence of these essentials
will afford the best warning both to themselves
and those who are guided by their judgment.
Forms, however well devised, will be constantly
simulated, and indeed rather afford a cover to the
aggressor than any protection to those whose
interests may be attacked. It is only by some
discriminating knowledge of the principles which
lie behind them that security can be attained.
Those indeed who are fairly carrying on the work
which the country requires may be much em-
barrassed and straightened by precautionary re-
strictions entailing losses and expenses which the
ordinary profits of industry can ill afford to bear, but
such formalities are no obstacle to an unscrupulous
adventurer, with whom such minor considerations
INTRODUCTION.
of cost or convenience can have but little weight.
Frauds there always will be ; but if those who are
now so often the subjects of them would look a
little more closely, and inquire a little more closely,
into the work which has actually to be done, the
law would soon be able to come to very definite
issues with the Spoilers, whether the suggestio falsi
or the suppressio veri has been the means of the
deception attempted. Either they have obtained
money under false pretences or they have not. If
they have, a properly chosen jury of their country-
men, or a court taking evidence as a jury, should
best be able to deal appropriately with their
criminality. If not, what more is to be said than
that those who attempt to get the gains of produc-
tion without incurring the risks or the labour
rightly associated with them are justly doomed to
disappointment ? I have nothing to say to those
whose real object is to get some one else's money
by any means which shall not place them within
the clutches of the law. Their own hands are
not clean. Let them take what the law gives them.
But they are altogether outside of the circle of
productive and self-sustaining industry with which
I am now concerned. When its conditions are
better understood and more honestly acted upon
the field of their operations will be very greatly
curtailed.
The most complete and outspoken fidelity,
" liber rima fides " should beyond all doubt be rigidly
required of those who assume the responsibility of
xviii INTRODUCTION.
employing other people's money. It is not enough
that Promoters or Directors refrain from deception.
They are bound to use due care and diligence that
the nature of the schemes which they undertake
should be rightly understood. But nothing is to
be gained by rashly bringing forward charges of
fraud or falsehood. For when it comes to the
point, a natural sense of justice recoils from holding
any man guilty of such flagrant offences unless
clear proof of ill intention can be adduced. What
is specially required in dealing with such matters
is, that " recklessness " and "negligence" should
be recognised as very grave faults, involving a
liability to an appropriate penalty, both in law and
in public estimation. But there are two sides to
this question. Upright and capable men will
neither claim prescience nor put themselves in a
position to be held answerable for the want of it
by the operation of any one-sided law which
ignores the fact that risks and reverses are in-
separable from all industrial enterprizes.
But while thus avoiding the consideration of
palpable and acknowledged perversions of the
industrial system, I have not set forth any trans-
cendental theory of morals. On the contrary, men
in their dealings with each other must be taken
.for what they are, not for what they ought to
be. The sole aid which the theory of value may
render to a higher morality is by unmasking the
vain pretence of virtue, and showing how with the
INTRODUCTION. x ix
means of making good their choice in their own
hands, men wilfully give effect to far other prefer-
ences than those which they affect to desire. If
we all as " consumers " are not well served, we may
depend upon it that some portion of the blame
rests with "ourselves.
More generally my intention has been to set forth
the basis of facts which underlies the appearances
presented both by the currency and the various
forms by which value is expressed in the terms of
it. There is little of novelty to be expected in
going over ground which has already been so
frequently traversed, but the views which I have
presented are from a somewhat different standpoint
from that which has been usually taken.
I have sought to go back to the reasons which
in the course of ages have led to that universally
acknowledged consensus of opinion which has made
the precious metals the common measure of value
throughout the world : for these reasons still exist
in the order of Nature, and so effectually govern
the limits of their use and of their value that any
attempt to control or regulate the one or the other
by artificial means can end only in failure and
confusion.
Further, I have constantly endeavoured to con-
vey the idea of the great work of material pro-
duction as it moves in unceasing and ever-changing
activity around us : to exhibit capital as main-
tained only by continuous reproduction, and the
conditions under which its consumption is implied
INTRODUCTION.
by the various obligations expressing the use of
credit ; keeping before the mind continually the
cardinal truth that though labour is the basis of
all value in exchange, that value must ever depend
upon the intelligent adaptation and adjustment of
natural resources to the felt and acknowledged
wants of mankind. The conclusions deduced are
little in accordance with that common desire to
acquire sudden wealth by some dazzling speculation
which has given birth to a system of " financing "
that has earned for the word a sinister signification
peculiarly its own.
On the other hand, a wider field is thus opened
up to the view of those who do not shrink from
the labour and self-denial which wins success by a
rational obedience to natural law. The task may
not be an easy one
Pater ipse colendi ,
Hand facilem esse viam voluit :
but the toil is lightened by the hope of
ample recompense. For the sake of precision
it may be needful to assume the fixity of
conditions which have to be made the subject of
careful analysis, but it is not the less true that,
even during the time taken to complete every work
of production, these conditions have been modified
for better or worse according to the measure of
success with which that work has been carried out.
We are not living under any dead law of rigid
necessity. It would indeed be a dismal Science
INTRODUCTION. xxi
which taught that the faithful use of man's best
faculties of mind and body could avail nothing for
the relief of man's estate.
On some points, especially regarding value and
production, I have disregarded the limits usually
assigned to the scope of Political Economy, though
I trust I have made my argument sufficiently clear
to avoid any confusion as to the commonly received
meaning of the terms used. But why is it, I may
ask, that a science which has done so much for
humanity has made so little progress even among
men whose capacity and disposition well qualify
them to deal with the subjects of which it treats ?
Its utility seems, as it were, arrested within certain
narrow and partial bounds. Is it not that it has
clung too long to restrictions which are useful
only as an expedient by which a new and untried
field of inquiry may be more thoroughly investigated ?
The reasonableness, indeed the necessity of this
method in the early stages of every new science
may be freely admitted. Adam Smith in his great
work on the Wealth of Nations fittingly confined
himself to the investigation of material considera-
tions, the just recognition of which must form the
basis of every stable civilisation and especially that
of a race of free men. Nor can objection be taken
to any one who may deduce logically to the utmost
the effects of the desire of wealth as the great
motive power of any supposed society, nor does the
exclusive assumption made imply any incapacity
to give due weight to all the other considerations
INTRODUCTION.
which together form the bases of State polity. But
surely work such as this, however useful it may be
within its own range, is essentially technical. The
designation of Political Economy assumed broader
grounds, and the results of investigations in a field
thus limited are surely rather adapted to aid in the
construction of an enlarged Science which should be
presented for the use of those who are not special-
ists, developed with a due regard to the relative
importance of other correlated truths, and thus
claim and take its fitting place in the hierarchy of
Sciences designed to subserve all the varied needs
of concrete humanity.
How these manifold needs can best be satisfied,
how they should be regulated, and what ought to
be the ends and objects to which men should devote
that balance of energy which is not required to
maintain their straggle for life, are questions coming
rather within the range of Physics, Physiology, and
the Moral Sciences. But admitting that the special
function of Political Economy is not to decide upon
the higher problems of utility, but rather to set
forth the law of justice and of necessity as regards
the voluntary interchange of services as between
man and man, it surely should not be considered
beyond its province to show how far the quantity
of labour devoted to material production is governed
by laws of physical necessity ; how far a change of
" will" can modify the existing conditions of indus-
trial organisation; and finally, how far material
considerations may be dispensed with or made
INTRODUCTION. xxiii
altogether subordinate in determining the objects
to which men may devote their energies and their
aspirations. A theorem obstructed by the notion
of the accumulation of wealth as the limit of its
inquiries does not readily rise to these higher pur-
poses. There is no due place for life to be found
within its borders.
Nevertheless it must be remembered also, that it
has to declare with rigid fidelity the facts which
come within its province. It cannot recognise in-
choate intentions which have not strength enough
to influence acts. The fruits of the earth are not
yielded to our good intentions or to our fervent
desires, but to our serviceable toil, and this rigid
law and its analogies are the bases of all true'
economic science. Hence it is that its teaching
will ever be obnoxious to all those whose ambition
is greater than their power to those who undervalue
labour, the fruits of which they willingly appropriate
to all, in short, who dream of attaining great ends
by feeble sacrifices and with inadequate means.
It is in accordance with these views that I have
ventured to submit a few remarks, after the conclu-
sion of my more special subject, on the economic
side of some of the fundamental social questions of
the day. An influential school of economists hold
that over-population is already the necessary cause
of the poverty which weighs down so large a portion
of the community. I contend rather that our
manifold resources, rightly applied, are as yet fully
adequate, and for many years to come may be
xxiv INTRODUCTION.
adequate, to make increasing numbers a source of
just pride and of strength to our country.
#** Various accidents have somewhat delayed
the issue of this volume. It was planned and com-
menced before I knew of the publication of Professor
Stanley Jevons's book on Money and the Mechanism
of Exchange, in the International Science Series.
I abstained from reading his work until my own
treatise was completed for the press. Such minor
coincidences as there are in matters of detail,
whether of agreement or dissent, are -therefore
altogether fortuitous. The Professor, in dealing
with the mechanism of exchange, approaches the
general subject of Money from a different direc-
tion, and is, for the most part, on different ground
from that which I have traversed. His intimate
acquaintance with the whole literature of the
subject makes his work most valuable for refer-
ence, and will suggest many subjects of reflection
to the student.
On a few of the points, however, of which he
has treated I will venture to submit some very
brief comments.
The questions of decimal coinage and interna-
tional money may well be left with those who
have devoted so much time and ability to these
subjects. All that I would deprecate in the move-
ment is that an over eager desire for uniformity
should accept coins as international when the bases
on which their values rested were not thoroughly
INTRODUCTION.
identical. This would merely remove a difficulty
from statistical tables at the expense of the accu-
racy of the facts recorded. Moreover, it will
surely be a very small and doubtful gain to
adjust the small differences in monetary units
while systems of weights and measures are not
assimilated. For the value of statistical tables de-
pends much on their continuity, and repeated
corrections for changes brought about in detail
would only make confusion worse confounded.
The construction of a "tabular standard of
value" is 'a subject of peculiar interest at the
present time. I have referred to it casually in the
Appendix on the Depreciation of Silver. The
Professor proposes that such a standard should be
deduced from an average of prices of a large and
well selected number of commodities, on the as-
sumption that the true price of gold must at all
times vary inversely with that of "all commo-
dities," and apparently that such variation is in
fact the cause of any general change in prices.
There are no doubt temporary conditions which
affect the purchasing power of gold used as money
at different times and in different places. It does
not attain to its world- wdde average of relative
value without many casual fluctuations above and
below the mean to which it inevitably tends. But
in a still larger degree does the elastic machinery
of credit admit of a very general expausion or
contraction of prices within any limited period or
area. The varying temper of commercial enter-
prize in its most generalized form, deals largely
xxvi INTRODUCTION.
with mere transfers in estimated terms of value,
and the validity of the prices thus assumed are not
proved till the final aggregate results of many com-
paratively long operations are tested by experience.
When, as has always been the case, a commercial
crisis discloses a large amount of long pre-existing
insolvency, the inference surely is rather that general
prices have been unduly inflated by a misuse
of credit than that they have been enhanced by
any change in the value of gold itself. The utility
of gold as a common measure and standard rests,
as I maintain, on the fact that its value is governed
by a far wider range of causes, and is comparatively
exempt from (though of course in degree influenced
by) such casual elements of perturbation.
I must demur, moreover, to the conclusion that
the value of gold was more than doubled during the
first half of the century, at least in so far as it is
based only upon the corresponding fall in the average
of general prices. For this allows nothing for the
immense development of industry which led to so
large an increase in individual productive power.
This power is indeed the most important element
in the question. If we suppose class A to provide
food and class B all other necessaries, it follows that
each produces twice as much as it requires for its
own uses, and the consumption of A and B may
alike be represented as \a + b. But if they can
so far increase their production as to be able to
admit C into the association, each will require ^
only of its own production for its own use, and,
as the common measure of labour shows the same
INTRODUCTION. xxvii
value in exchange for the increased production, that
of the several items of it must be expressed by ^
instead of -. But this local development does not
affect the value of gold, the supply of which is
derived from so many different regions, and its
stability, rather than its depreciation, is to be in-
ferred from a marked fall in local prices under
such conditions. This principle will hold good,
though the fractions which would represent the
actual results may be infinitely complex and
variable. During the subsequent period there is
much reason to suppose that causes very much the
converse of these have come into operation. I by
no means say that gold has not risen and fallen,
but I do submit that the fact cannot be positively
inferred, and, d fortiori that the extent of any
change in value cannot be measured merely by a
comparison with general prices, however ably
deduced. It would be very deceptive so to mani-
pulate the standard as needlessly to hide or obscure
such important factors as an increase or decrease in
the actual cost of production.
Professor Jevons further contemplates the ex-
pediency of using this tabular standard of value
for money debts " say of more than three months'
standing." The essential point involved here was
noticed by anticipation in Ch. II, 23. If such
current debts were payable in weights of gold
varying according to the proposed standard as its
indications were published from time to time, prices
would be fixed according to the anticipated require-
ment to find a greater or less amount of the metal
xxviii INTRODUCTION.
or coin in which the debts were actually to be
discharged. The effect of this would be to counter-
act the natural ebb and flow of bullion by means
of which its value is made to depend on a world-
wide average of demand and supply. Our currency
would be practically so far isolated while the prices
on which the proposed average is to be deduced
would be settled with reference to a constantly
varying weight of metal.
We should, I fear, ere long, be landed in utter
confusion : the more so as there would be an
uncertain gap between the money in which all
importers and wholesale dealers had to pay their
longer obligations and that in which their transac-
tions had to be carried out to the end by retailers
and consumers.
But while I consider this proposal altogether un-
tenable, I should be glad if any word of mine
could add weight to Professor Jevons's recom-
mendations in favour of organising our national
statistics by the most efficient methods possible.
Public money might well be expended on a matter
of so much general importance. The objections to
the use of such a standard for current transac-
tions do not apply to its application to many
obligations extending over lengthened periods of
time, which indeed in not a few cases might quite
as conveniently be made to depend upon the actual
purchasing power of current money, as upon any
direct reference to the value of gold.
E. H.
FEBRUARY, 1878.
L J B I? A ,
UNIVKUSITY UK
CALIF<
MONEY AND VALUE.
CHAPTER I.
(Money.)
T>T>T-&JT A T\r
ERRATA.
Page 80, line 8, for "unexceptional" read " exceptional."
,, 278, line 3, note, for " alieno ne " rend " alienum non."
320, line 33, for " elapse " read " lapse."
,, 351, note, /or " A.D. 1847, 5/2H" <* " V^TT-"
371, line 3 from bottom, note, for "108'* " read " 106' 4 ."
, , 385, line 25, /<w ' ' evidently, " read ' ' eventually. "
phrases. Like as in the old cabalistic lore the word
or symbol was tortured to yield an occult knowledge
of the thing signified till its true meaning was not
only missed, but overlaid and even totally lost, so
men still look to the mere forms which money
assumes for an explanation of the many irregular
results caused by the working, not only of untram-
melled human passions and ignorant desires, but
of such motives only so partially controlled as
INTRODUCTION.
or coin in which the debts were actually to be
discharged. The effect of this would be to counter-
act the natural ebb and flow of bullion by means
of which its value is made to depend on a world-
wide average of demand and supply. Our currency
would be practically so far isolated while the prices
on which the proposed average is to be deduced
would be settled with reference to a constantly
varying weight of metal.
We should, I fear, ere long, be landed in utter
confusion : the more so as there would be an
uncertain
of so much general importance. The objections to
the use of such a standard for current transac-
tions do not apply to its application to many
obligations extending over lengthened periods of
time, which indeed in not a few cases might quite
as conveniently be made to depend upon the actual
purchasing power of current money, as upon any
direct reference to the value of gold.
E. H.
FEBRUARY, 1878.
L I B I,' A It V
UNjyj.;!{S]TY OK
CALIF-
MONEY AND VALUE.
CHAPTEE I.
(Money.}
THE PRIMARY USES OF METALLIC MONEY.
THERE are few subjects which are at once of so
much general interest, and yet so little popularly
understood, as " money/' The use of it in some
form or other has come down to us from the most
remote ages of antiquity, and would almost seem
to have brought with it, even to the present day,
some of the fantastic superstitions of alchemy or
necromancy, which are none the less pernicious
from being reclothed in modern and quasi-scientific
phrases. Like as in the old cabalistic lore the word
or symbol was tortured to yield an occult knowledge
of the thing signified till its true meaning was not
only missed, but overlaid and even totally lost, so
men still look to the mere forms which money
assumes for an explanation of the many irregular
results caused by the working, not only of untram-
melled human passions and ignorant desires, but
of such motives only so partially controlled as
CHAP. I.
MONEY AND VALUE.
CHAP. I.
to distort and obscure their manifestation by
every variety of artifice and disguise. Whenever
conventional morality is unreal, pedantic and
one-sided, and positive morality consequently lax,
confused and hypocritical, the test of money may
expose the hollowness of its pretensions. Whenever
arbitrary power attempts to override the inclina-
tions and will of the governed, money often affords
the most effectual means of baffling and evading
the oppression. Whenever impatience or credulity
attempts to realize desired ends without the use of
adequate means, it is money again which may
demonstrate most forcibly the inevitable failure.
All the subtlety and ingenuity alike of well- or ill-
intentioned folly rebels against a test so unintelli-
gent, yet so impartial. But very much as almost
every fallacy under the sun may receive the ap-
parent support of numerical statistics although
the rules of simple arithmetic are absolute and
incontrovertible, so schemes for the manipulation
of money may be so devised as to give colour to
those very delusions and deceptions which the test
of money, when rationally applied, is best calculated
to dispel. Again, there is a constant tendency to
confound the nature of the agent with that of the
purposes to which it is applied and the results
attained by it. The money which is so intimately
associated with every relation of life, thus, by in-
numerable false analogies, comes to be confounded
with the true causes which give rise to success
or failure. It represents the concrete outcome of
THE PRIMARY USES OF METALLIC MONEY.
delicately adjusted labour in various stages ; but is
taken to be the efficient cause of such results. In
a certain limited sense this is reasonable enough,
and reflects that state of mutual interdependence
and mutual trust which is essential to all higher
states of social development. But it is because so
many of the mutual relations of society are and
must be expressed in the terms of money, that a
clear comprehension of the scope, the limits, and
the intent of such terms becomes of so much
importance.
2. I shall not ask my readers to follow me into
the polemics of the " currency question/' or into
any inquiry into the innumerable fallacies by which
the subject has been complicated. If we can only
succeed in keeping to the simple facts as to what
money does and can do in the world's work, such
mystifications and delusions will be altogether
avoided. My endeavour will be to state as clearly
and concisely as I can what money is, and what are
the functions of the precious metals in relation to
it, though as we can sometimes best indicate the
boundaries of a country by naming the regions
which lie just beyond its limits, so the functions of
money may sometimes be most readily explained by
showing what it can not do, and what obligations
cannot be expressed by means of it. I must crave
patience if I begin by stating what may seem to be
mere truisms, for it is often the case that where
fundamental truths are not stated because they are
trite, they are ere long tacitly ignored because they
B 2
CHAP. I.
The scope
of the
inquiry.
MONEY AND VALUE.
CHAP. I.
The nature
and basis
of Value.
have not been brought forward. Moreover, it will
be found that the chief effort of mind required for
the consideration of the question is to keep in view
simple primary truths in their full integrity, and in
their due relative importance. The danger of going
astray arises not so much from the difficulties of the
road as from the glamour which surrounds it.
3. Before entering fully upon my argument, let
me call to mind very briefly some of the funda-
mental conditions under which life, and especially
life in a highly civilized state, has to be maintained.
(a.) There is no proposition of political economy
which has a more general bearing on all social ques-
tions than that the " capital " which supports all
life and labour is constantly in course of consump-
tion, and can be replaced only by the persistent and
well-directed application of that labour which it
supports. For the most part the fruits of the
soil are yielded, and their consumption must be
reckoned, in annual cycles, though mankind would
fare badly if the surplus of abundant harvests was
not stored to meet the deficiencies of years of
scarcity. The several products of pastoral and
agricultural industry are yielded at very different
intervals. The rate of consumption of food, of
clothing, of dwellings, of machinery (or, so-called
fixed capital), varies in numberless ways and
degrees, though the correlation of production and
consumption, of work . and waste, of the conserva-
tion and dissipation of energy, runs through all
Nature.
THE PRIMARY USES OF METALLIC MONEY.
(b.) Further, the utility of all things which we
require does not depend merely on their inherent
qualities, but upon their adjustment and adaptation
to our several wants. Even those things most
necessary to support life are required only in certain
limited quantities. Life itself may depend upon
the continuity of the supply, and obvious precau-
tions will be taken to prevent any intermission of
it ; still stores held for this purpose are so much
dead weight, and excessive hoards are utterly use-
less. Nothing can be said to have an absolute
value, or to be more useful than another, without
regard to its relation to the existing aggregate of
our needs.
(c.) Lastly it may be stated, as a general condi-
tion of the world in which we live, that a man's
labour, without overtaxing his health or strength,
will obtain for him from Nature a far more ample
return than will suffice for the primary wants of
himself and of those naturally dependent on him ;
especially if he concentrate his energies on any one
kind of production, he obtains far more than he can
consume of that particular product. This holds
good even in a rude agricultural state, and, a
fortiori, where the efficiency of labour has been
economised and increased by the arts of higher
civilization. There may be a scarcity, of food for
instance, as compared with the aggregate numbers
of a community : that is a different question,
arising rather from the exceptional poverty or in-
adequacy of the " natural agents " which it may
CHAP. I.
MONEY AND VALUE.
CHAP. I.
Money is
that which
confers a
special
power of
choice.
possess ; but there is not the less a surplus of pro-
ductive energy because it may appear in the form
of an excess of the power of labour which is in want
of fitting occupation. The accretion of economic
rent exemplifies this position, though there may be
a large surplus of produce without any such accre-
tion. Inducements and facilities for the division of
labour are very deeply seated in the order of
Nature, and the palpable advantages of it are largely
increased by the cultivation of special faculties and
aptitudes ; but with this specialisation the work of
adaptation and adjustment must go on with greater
powers and also with more manifold complexity.
It is not enough that such well-known principles
should be acknowledged. They must be realized as
conditions under which our thoughts must work in
order to carry out the analyses required for the
elucidation of the subject. What, for instance, can
be more common than trite reflections on the
instability of all mundane affairs ; while the idea
of continuous adjustment according to the order
of Nature is set aside for one of immobility, so
conceived as to give place to blind faith in mere
formal precedents, which has often misdirected the
efforts and impeded the progress of mankind.
4. The primary idea of money is that of some-
thing by the possession of which a certain power of
choice or selection is conferred. Barter means the
exchange of one thing for some other; but sale
(by which it is implied that one of the terms of
the exchange made is expressed in money) means
THE PRIMARY USES OF METALLIC MONEY.
more than this. The thing parted with is exchanged
not for any other specific thing, but for that which
will in effect give the owner the command over
many other things. Anything that can be used
for this general purpose, in so far as it is so used,
is money. If any one substance more than another
becomes vested with this property of general ex-
changeability it acquires an intrinsic and quite in-
dependent value arising from this newly developed
property alone. It may still in part supply certain
special wants as before, for its inherent qualities
remain the same, though those which fit it for the
one purpose are not necessarily conterminate with
those which fit it for the others.
An obvious corollary of this proposition is that
money can only represent values according to the
preferences which those who successively hold it
may chose to exercise according to their estimate
of the relative advantages to be derived from own-
ing possessions of one kind rather than another.
Its own special use is to give effect to a wider range
of interchanges than those which can be simultane-
ously made ; but its indications cannot transcend
the current opinions of relative value which are
for the time dominant.
Even if we suppose a primitive state of society,
where cattle could be exchanged for many other
desired objects with more readiness than corn or
any other less portable form of wealth, we have
clearly an inducement to keep cattle over and above
the numbers required for food or clothing or any
CHAP. I.
MONEY AND VALUE.
such purposes. The excess need not be specifically
set apart, and is as well adapted as ever to supply
these original wants ; but there are no wants of the
kind left to supply. This new element of value
would assuredly be felt and recognised, though it
might not very clearly be defined, and would be
based solely on the practical estimate, however
roughly formed, of the trouble of rearing and keep-
ing the increased number of cattle on the one side,
and the intensity of the desire on the other, to com-
mand the choice of whatever could be obtained for
them, and, among other considerations, a sense of
power would be associated with the possession of
cattle tending greatly to their accumulation, not
only with no direct reference to their original uses,
but even in excess of the number which could be
sold as a means of gratifying wants of any other
description.
5. I have dwelt upon this point because it seems
to me that the intrinsic utility of the precious metals,
as based upon their pre-eminent adaptability for
use as money has hardly been recognised with
sufficient clearness, and an occasion is thus given to
attribute to them an occult, or an absolute value
not rationally based upon, and limited by, the uses
which they actually subserve. Mr. Tooke seems
very fairly to represent the current opinion of his
day when he " admits " that " the value of the
precious metals as money must depend ultimately
on their value as materials for jewelry or plate,
since if they were not used as commodities they
THE PRIMARY USES OF METALLIC MONEY.
could not circulate as money ; " and further that
" the primary cause of the utility of gold is its use
as the material for plate. The secondary cause is
its use as money." Mr. J. S. Mill, also, in his
chapter on money in his Principles of Political
Economy, lays some stress upon the statement that
" the strongest inclination in a rude state of society
is for personal ornaments," and that in such a state
" every one was eager to accumulate as great a
store as possible of things at once costly and orna-
mental."
The striking qualities of the precious metals no
doubt attracted attention to them in remote ages
far beyond historic times, and they thus became
very widely and generally recognised, but the very
earliest records refer to their use as money, and
there seems no reason to doubt that their peculiar
fitness for this special purpose constituted their
chief value from almost the very first dawn of
civilization, though then, as now, the nature of
the work they did may have been very imperfectly
understood. The rude tribes of the present day
have no special liking for gold as an ornament,
even when they are familiar with it, until they
have found out practically that it has a " purchas-
ing power" and a peculiar value which is not
visible on the face of it. There are then new and
very powerful motives to exhibit it for purposes of
ostentation, but the gratification derived is largely
owing to the sense of a power held in reserve the
power, that is, which gold has potentially as money.
CHAP. I.
10
MONEY AND VALUE.
The fallacy expressed in the first quotation is that
the use of the precious metals as money does not
suffice to make them " commodities," as if as a
matter of fact the use of such money were not in
itself one of the greatest of conveniences. A man
keeps coin in his pocket, or a banker treasure in his
vaults, or a patriarch shekels in his tent for com-
mon and clearly recognisable uses, which have
nothing whatever to do with any notion of con-
verting them into plate or ornaments. Uses of
either kind are quite adequate independently to
create effective demand, but in fact, as we shall
more clearly see hereafter, the special value of plate
or ornaments is something superadded to the general
value of gold or silver as bullion, and the aggregate
value depends for the most part not so much on the
fact that these metals are thus diverted from their
uses as money, as that they may readily be reverted
to them. The uses of the precious metals are so
peculiar and exceptional, that it is often convenient
to speak of them on the one side, and of all other
commodities on the other ; but the opposition is
casual only, and, as far as gold and silver are
used as money at all, they are commodities used
because they are best fitted for certain purposes,
to which therefore they have come to be univer-
sally applied.
6. The very fact that the inferior metals can be
used, not merely as ornaments, but also more gene-
rally for common purposes of life, renders them
less suitable as money ; for the wider range of
THE PRIMARY USES OF METALLIC MONEY. 11
competition to which they are thus exposed makes
them more liable to extreme fluctuations in value.
"We have to go back to early times to find a case
where they have been so maintained in use except
as mere tokens, but a reference to the history of
early Eoman money may serve to illustrate the
point. The first unit and standard of value was
the " as," or pound, which, for all purposes of this
argument, may be roughly taken at seven-eighths
of a pound avoirdupois. The first records (to which
Dr. Smith gives ample reference in his Dictionary
of Greek and Roman Antiquities) would seem to
imply an almost incredible cheapness of this metal ;
10,000 asses for instance being cited as the sum
assigned for the horse (or perhaps the horse and
equipments) of an eques, and 2,000 for its annual
keep. In B.C. 269, shortly after the extension of
conquest had led the Romans into close connection
with the Greek cities of southern Italy, which had
long been familiar with the use of the precious
metals the denarius of about sixty grains weight
of silver was introduced as the equivalent of ten
asses, or about seventy-two pounds avoirdupois of
copper, being in the proportion of one to about
850. But in B.C. 260, the copper "as" was re-
reduced to one-sixth of its former weight. This
was in the harassing times of the first Punic war,
and high authorities differ greatly upon the very
obscure part of the question which relates to
comparative values ; but no such sudden reduction
in the weight of current metallic money could have
CHAP. I.
12 MONEY AND VALUE.
been enforced by law in order to pay off the
creditors of the state or of individuals. It is
quite credible that a bankrupt should pay only
85. 4:d. in the pound, but it is physically impossible
for men to accept payment of all their obligations,
including wages, on terms conveying one-sixth only
of their former purchasing power, and we have
either to suppose a wholly abnormal decline in the
value of the necessaries of life, or that the value of
the copper had very greatly increased. There
seems hardly room to doubt that, owing to its
comparative cheapness, it had been largely used for
general purposes both of war and of peace : the
bronze so well-known and so much used con-
tained seven eighth-parts of this metal. The
opening up of trade may no doubt have expedited
the process, but the cheaper and more generally
useful metal, once withdrawn, was absorbed for such
uses, and soon disappears altogether, except as a
subsidiary token, from the monetary system of the
country. Whether debtors or creditors got the
better in equity of the change may be an open
question, but allowing the largest conceivable limit
for any wilful degradation of the currency, a rise,
not only as compared with silver but in actual
purchasing power, must have taken place far be-
yond that which under any conceivable circum-
stances could occur in the value of either of the
precious metals.
It is far more to the point to show how the
precious metals are specially fitted for use as money
THE PEIMARY USES. OF METALLIC MONEY.
13
by the very fact that they do not themselves satisfy
directly any of the ordinary wants of mankind ;
that they are not liable to be consumed on any
emergency, or withdrawn to any large extent for
such purposes. They remain indestructible and
ready to perform over and over again those pecu-
liar functions into which they have grown, and but
for which, gold and silver, though possibly valued
for their rarity and costliness by the few, could
never have been objects of rational desire to the
many. Even if it be admitted that the first use
of the precious metals, in point of time, was for
ornament, that use has been subordinated ages
ago to uses of a far more important and general
character, which will be clearly perceived if
the principles above referred to ( 3) are fully
realized.
7. I shall now endeavour to explain, first the
primary and general uses of metallic money ; then
some of the more indirect and localised uses, and
the conditions under which it comes to be used
inferentially or by means of substitutes. We shall
then be better able to see how the great work that
money does is to generalise values, and thus to
render more secure that continuity of supply, fitly
adjusted to the wants of mankind, which is the
material basis of all civilization ; and further, that
the specific value of the precious metals themselves
which rests chiefly on their utility as money
while serving this function, becomes generalised in
CHAP. I.
The
precious
metals
have a
highly
generalised
value and
serve to
generalise
all other
values.
14 MONEY AND VALUE.
CHAP. I.
Law of
Demand
and
Supply.
a pre-eminent degree, though ultimately governed
by just the same law of " demand and supply " as
any other commodity.
8. This so-called "law" of demand and supply
is simply an exposition and recognition of the
motives which actually do influence mankind in
their mutual dealings, and will continue to do so
as long as human nature remains substantially
unchanged. On the demand side we have the
category of all the reasons why men seek to have
the use or enjoyment of any object or services.
No limits can be assigned to the intensity of any
man's desire to attain such advantages, but im-
perative considerations will inevitably govern some
and influence most, though not always all, of his
motives. But the wants of our many-sided nature
may be satisfied in many ways. Taking even our
most primary needs, man may thrive on wheat or
rice or rye or millet, or on all or any of them in
any proportion ; and his choice will be influenced
by what he may have to give up to obtain the one
rather than the other. The supply side of the
question deals chiefly with the sacrifices which are
thus required. In the long run, men no doubt will
not work unless they expect to get directly or indi-
rectly that which will recompense them for their
toil, but while permanent supply thus strongly
tends to be measured by the comparative quantity
of labour necessarily expended upon production,
casual supply is largely affected by natural acci-
dents. It is sometimes in excess, sometimes in
THE PRIMARY USES OF METALLIC MONEY.
15
defect ; and the more perishable commodities
especially may, for all purposes of exchange, be
necessaries or superfluities, invaluable or valueless,
according to changing circumstances. So in the
ordinary course of nature, which from this point of
view is rather rhythmical than constant, we may
have demand varying from the direst urgency down
to utter neglect, and supply involving present sacri-
fices ranging through similar extremes. Nothing
therefore can be more natural to mankind than the
interchange of commodities, unless indeed these
reasons are overborne by the instincts, customs, and
traditions inseparable from a state of constant
warfare. It is not only that the products of
neighbouring countries are attractive from their
novelty ; but each side may have something to
gain, and can offer distinct advantages to the other.
The notion that in trade one man's gain must be
another's loss rests upon a radically false conception
of the known order of Nature.
9. It is commonly said that all trade was origi-
nally barter. Speaking in the general terms fitted
to the present stage of the argument, it may be
said with more truth that all trade now and at all
times must, for by far the most part, consist of the
interchange of consumable commodities, though,
for reasons quite other than those just now under
consideration, the exchanges are all made in terms
of money. But it is convenient to start from
this simple notion of trade, and see how the
precious metals are naturally fitted to grow into
CHAP. i.
Irregular-
ity of de-
mand and
supply.
How the
precious
metals
come
into use as
money.
16 MONEY AND VALUE.
their special use as money, and are peculiarly
adapted to aid in giving effect to some of the first
weak promptings of forethought and intelligence.
There are two sides to every bargain. It is not
merely giving on one side and receiving on the
other. Each must have a want that the other
can satisfy. There must be both a surplus and a
deficiency on the one side to correspond conversely
with a surplus and a deficiency on the other ; and
these conditions must be continuously maintained
and fulfilled if the mutual relations of commerce
are to go on and prosper. So even assuming the
first difficulties of opening up intercourse to have
been conquered and a trade to have begun, a defi-
ciency in one particular may entail not only the
direct loss on one side, but an indirect loss on the
other ; for that which was ready to be exchanged
remains in excess, and is not wanted where it is,
though those who do want have to go without
it. There is a diminished inducement to continue
its production, and an increased chance that the
same mishap may occur in the future under condi-
tions simply reversed. The continuity of industry
is broken for want of its appropriate stimulus, and
the material prosperity on both sides suffers accord-
ingly. It is quite premature, at this stage of the
question, to say that " capital " set free from one
purpose may be devoted to another. Aberrations
from ordinary supply are at best probable causes of
some immediate waste and loss. How, and how
far, such losses can be mitigated or obviated, so
THE PRIMARY USES OF METALLIC MONEY.
17
as to make such a generalisation as " capital "
possible, is just the point now under considera-
tion.
10. Apart from any question of external trade,
a supply in excess of apparent wants is a source oJ
danger. An over- abundant harvest, for instance, is
in the measure of its excess, a present burden to
the producer if he cannot get rid of the super-
fluity. He can get nothing for it ; it is liable to
deterioration ; it tends to depreciate the value oi
subsequent harvests if brought into competition
with them. It is against the special interests oi
their own class for cultivators to hold unusually
large stores, and they have a double temptation
to relax their industry. Even if surplus stocks
are distributed in exchange for other commodities,
still unusual abundance is always a temptation
to lavishness and to idleness. But the precious
metals cannot be consumed. They represent the
results of a great deal of labour embodied in a
" utility " of a singularly indestructible kind.
Granted that in very rude and early times they
may only have been made into ornaments and
merely bartered for other things probably neces-
saries of life, under the pressure of actual want
still they remain somewhere; and wherever they
go to, it may be presumed they can comeyrom. If
they are generally held in esteem for any reason
whatever, they will on some terms or other get into
the hands of those who can afford to hold a reserve
of this description.
CHAP. I.
Waste not
induced
by their
superfluity
18
MONEY AND VALUE.
CHAP. I.
Correla-
tion with
uncertain-
ties of
natural
produc-
tion.
11. If in the order of nature; man's wants and
the means of satisfying them had always been
coincident, the need to hold such reserves would
not have arisen. But chances and changes are con-
stantly happening to individuals and districts and
countries, both from their own errors and from
causes entirely beyond their own control. Very
general or widespread disasters are indeed rare, and
a law of average seems to govern all fluctuations
which are nevertheless of constant occurrence.
Costly ornaments, as such, are merely the luxury
of the few whose primary wants are amply sup-
plied and who are not under the apprehension of
want ; but if they can be usually bartered for such
commodities as may in the changing chances of
life become indispensable, they become essentially
money. Once let them become invested with the
notion of general exchangeability, and the rest
follows as a matter of course. Consciously or
unconsciously, this new kind of utility will be
practically recognised ; and if experience justify
the vague and inchoate confidence first felt, it will
grow by its own growth. The precious metals
which pre-eminently fulfil the required conditions
take up to themselves this special property of re-
presenting general exchangeability, and the faith in
their general purchasing power, as money, becomes
by a natural course of development (extending pro-
bably from far back into prehistoric ages) one of
the strongest convictions in humanity removed
above the lowest stages of barbarism. It is the
THE PRIMARY USES OF METALLIC MONEY. 19
one conviction shared by many who differ in race,
language, religion, habits, and traditions, and have
lost almost every other visible trace of a common
origin.
CHAP. I.
12. And what are these uses ? I do not at once Primary
refer to metallic money as a medium of exchange, ; metallic
because primarily it is not used as a mere medium.
It embodies in itself in substantive form a highly
generalised purchasing power, and for certain pur-
poses in the world's economy this power is wanted
in such a form. And although it is not possible
to express the quantity so required in the terms
of weight or value, it may not be in vain to try
to indicate what these uses are, so that at the least
we may know where to look for the indications of
any changes which may affect the use or the supply
of the precious metals, whether arising from merely
local and temporary causes or from those which
are more general and permanent, and form some
relative estimate of the magnitude and consequences
of any such changes.
13. The adequate reason for holding such a
purchasing power in reserve is that we do not
immediately know what to do with it, but have
a reasonable assurance that it can be turned to
some good purpose hereafter. Mere caprice or
ostentation, though common enough, are very in-
adequate motives for holding a costly material
which does not increase by natural growth and
cannot be used for any of the common purposes
of life. The primary use served is simply that
c 2
Why
purchas-
ing power"
is held in
reserve.
MONEY AND VALUE.
CHAP. I.
Why in-
vested in a
costly sub-
stance.
which has already been indicated. The reserve in
the form of substantive money is and can only be
held in correlation with that natural inequality of
production which causes the casual aberrations in
the value of other commodities. It is idle to say
that the superfluity of one quarter might just as
well be lent to supply the deficiency in another. As
a matter of fact speaking of course of the rule, not
of the exception such lending and borrowing has
never been carried out in practice without the use
of money in some form ; and, though giving is an
admirable virtue, the lesser blessing of receiving
has ever been fraught with the most disastrous
consequences indeed giving, in the mouth of the
receiver, very soon comes to mean the unrequited
toil and practical slavery of the giver. None can
be exempt from the common lot of toil ; therefore
the abstract purchasing power is rightly vested in
a costly substance procured only by much toil.
All are subject to inconveniences from the excess
or defect of the results yielded to their toil :
therefore a substantive representative having a
potential value adapted for prospective use is
taken by those whose products are in excess, and
parted with by those whose more immediate wants
have to be satisfied. If there had not been this
coincidence between the facts in nature and the
qualities and obvious uses of the precious metals,
the peculiar functions of money could never have
been developed.
14. As far as the adjustments of production and
THE PRIMARY USES OF METALLIC MONEY.
21
consumption are simultaneously or directly made,
there is no room for the use of money in this
primary sense. Even when it has become the
common medium of exchange, any one who buys
as much as he sells cannot possibly have any
money left in his hands. There is no conceivable
use for a specific duplicate representative of the
value of commodities, the utility of which is pre-
sently available, and which the owners meantime
retain in their own possession. The vague notion
that money is in some way co- extensive with
wealth, or that, in its specific form and irrespective
of the special uses it serves, it constitutes value,
arises apparently from some confused idea that
because money can usually buy anything at any
time which indeed is, as far as possible, its special
function it could therefore, if only there were
enough of it, buy everything at all times : the I
seller's side of the question being lost sight of
altogether. The quantity, or more strictly the
value, of money which can be employed, does not
in fact bear any direct relation to the wealth of
a country in houses, fields, mines, or any such
productive property, or to the magnitude of its
transactions in commodities interchanged the one
against the other for present or proximate use. It
depends entirely upon the extent to which the
processes of readjustment just referred to are being
carried on, the conditions of which are that some
members of the community have given up the
present possession of the commodities required for
CHAP. I.
Limit of
these uses.
22
MONEY AND VALUE.
CHAP. I.
Money
represents
general
interests.
he use of others, in exchange for a "purchasing
power" vested in a substantive form which may
indeed be used at any time, but which it is not
reasonable to suppose they will try to use at once
;o reverse their own act.
If a highly philosophic soul were to urge that
gold was useless and valueless, inasmuch as it did
not satisfy in any way any of the wants of a
reasonable being, the reply might still be urged
that it is, at the least, a most effective means of
getting credit for such commodities as would
sustain him, till he could earn them for himself
as the fruits yielded by the natural increase of
nature to his own industry, and he may have the
added satisfaction of knowing that the receiver of
tiis money, and the receiver from him again and
again, will have precisely the same advantage,
though no power on earth can so transmute the
metal as to make it serve any other purpose
more useful to mankind.
15. The distinction must be carefully held be-
tween the business of those who are known as
money-dealers and the proper functions of money
itself. It should be borne in mind that the
theorem of "demand and supply" only represents
two closely-connected phases of the conditions
under which we all live, and it will be well to
understand clearly how they severally stand in
relation to money. All, without exception, must
swell the demand for consumption that must go
on continuously from day to day as a matter of
THE PRIMARY USES OF METALLIC MONEY. 23
physical necessity. All must also be held to make, CHAP. i.
directly or indirectly, the sacrifices requisite to
secure supply. The first is the general interest
common to all : the second is subdivided into
innumerable special interests casually opposed to
the broader general interest. It is the general
interest common to all that products should be
absolutely cheap, that is, yielded to the least pos-
sible expenditure of toil bad work and scamped
work, and all such misfeasance, are not in any true
sense cheap, but ruinously dear; while each par-
ticular interest naturally desires that its special
product should be relatively dear, that is, that its
own sacrifices should be more amply recompensed
than the sacrifices of others. Now money can
only be held by those whose wants and desires
are not urgent, and spent by those whose
wants, whether necessary or capricious, are more
urgent. For no man spends his money until he
gets for it something that he wants more, or for
some reason likes more, than anything else that
he expects to be able to get for his money. But
by the very act of buying he transfers his power
of buying to the seller, so that quite irrespective
of any wish or intention of the rich who very
much at their option may or may not have wealth
in this special form the possessor of money for
the time being is, so far, identified with the general
interest just referred to : he is outside of all special
interests and the increase which naturally accrues
to them. He is in the most general sense a buyer,
24
MONEY AND VALUE.
CHAP. I.
"Buying
cheap and
selling
dear."
and, in common with consumers, desires to get
good value for his money.
16. The holding of specific money is in fact a
burden. There cannot be any usufruct of it, taking
the word in its strict primary sense. The cultivator
eats the corn grown in his field, trusting that other
corn is growing up to supply its place ; but the
mere money owner who spends to satisfy his wants
is rather in the position of one who sells a field
which will never come back to him again. There
is therefore a very strong and constant stimulus
for the holder of money to find out some way of
making some use of it which may entitle him to
share in the natural increase of production ; but
though the individual may transfer his general
purchasing power, that only transfers the difficulty
to another. But experience shows the accumu-
lated experience of ages if you will that, to use
a much-abused phrase, many things can often be
" bought cheap and sold dear." But this could hardly
afford an adequate reason for the continued use of
materials so costly as the precious metals, unless
there were some real utility in the operation in
which the community at large fully shared; for be it
remembered, all operations of the kind are perfectly
free from all coercion, except that which arises from
natural causes beyond the control of man. Barter
affords the most ample scope for the art of mere
bargain- driving, and the use of money rather
lessens than increases the advantage which craft
has over ignorance, for as far as the current
THE PRIMARY USES OF METALLIC MONEY. 25
business of buying and selling is concerned, one
man knows what money is just as well as another,
which is by no means always the case as regards
the commodities dealt with. Indeed it should be
observed that though it is the money owner who
tries to buy cheap, it is as the owner of a special
commodity that this buyer hopes to sell dear-
Such a use of money could not have been sus-
tained or tolerated if it were not a fact in nature
that many things are far less useful under some
conditions than under others, and that opportuni-
ties constantly arise for adjusting these injurious
inequalities. It is to the purpose in this context
to refer rather to utility than to the cost of
production, for though commodities required by
others may have been produced with very little
labour, yet the owners are not likely to part with
them unless they have more than they require for
their own wants. Conversely they will readily
part with an excess which they find they cannot
use, although it may have cost them a great deal
of trouble to acquire. Money cannot go beyond
the present urgency of demand, and the first
demand will naturally be that of the producers
themselves to satisfy their own immediate needs-
If under ordinary circumstances any commodity
can be yielded at less cost in one place than in
another, there is an evident reason for attempting
to exchange it habitually for some other con-
sumable product ; but the precious metals are not
suited for permanent traffic of the kind, for both
26 MONEY AND VALUE.
CHAP. I.
Extended
uses of the
precious
the supply of them, and the uses to which they
can be applied, are limited. They circulate with
great advantage ; they are constantly an object of
desire ; but experience soon shows that nothing
can be gained by unduly accumulating them.
17. As the precious metals become known and
used as money in different communities, a more
extended field for, and, to a certain extent, an
amplification of their uses is found. It is indeed
rather for the convenience of exposition than from
any supposed sequence in order of time that I have
not hitherto referred to these uses, and do not yet
allude to those connected with the division of
labour. Different monetary customs and systems
have arisen in all ages from differing circumstances,
and are to be found in all stages of development in
the present day in various parts of the world. My
object is not to present an historical sketch, but to
deal first with more general principles, and then
to proceed to those arising from them which are
more liable to casual modification.
All value in exchange is merely relative, and, as
far as peoples are isolated in separate countries,
whatever may be the quantity of the precious
metals seeking employment, the value that can
be employed must be determined by the extent
to which such uses as I have described can be
found for them within these limits. What these
limits are, what variety of conditions are comprised
within them, whether their boundaries are easy
or difficult to pass, are all questions to which a
THE PRIMAEY USES OF METALLIC MONEY. 27
i
due reply could be given only by aid of a widely CHAP. T.
extended and most searching knowledge of political
and physical geography. But a further special
function of the precious metals as money is to
overrun these barriers and extend the limits of
peaceful intercourse.
18. Given any substance widely recognised, and HOW they
as widely appreciated, so portable and indestructible!, "common
that it can be carried with the least possible cost'
and risk from place to place, and we have a most
potent and subtle agent for extending the sphere of
the beneficial interchanges and adjustments of com-
merce. Whatever obstacles may be opposed to such
money, by war, by policy, by prejudice, or by
natural barriers, it will be the pioneer best fitted
to baffle, or evade, or overcome such difficulties
more than all, that unwillingness to act which
results from ignorance and uncertainty. It is a
mere delusion to attribute any peculiar positive or
abstract value to the precious metals. If a given
weight of metal can be exchanged for fifty measures
of corn in one place, and sixty in another, is the
corn cheaper or the metal dearer ? If it be merely
a question of getting ornaments, the latter is cer-
tainly the more appropriate reply. If we were
regarding corn simply in connection with the well-
being of the inhabitants of the respective regions,
the fact would be of very slight and uncertain
significance either way. But the given weight, say
of silver, affords a means of comparison which is
easily intelligible and sufficiently accurate, though,
28
MONEY AND VALUE.
CHAP. I.
How they
specially
aid enter-
prise.
as every trader kiiows, the fact that so many
measures are given for his silver to-day is no proof
that the same or any greater or less quantity will
be given at any future time. Still there is some
object, not only definite but tangible, with which
anything which can be made the subject of a
bargain can be compared. Whether a fixed quantity
of commodities is given for a varying weight of
silver, or a certain weight of silver for fluctuating
quantities of commodities, the comparisons sug-
gested are so simple and obvious, that the silver
becomes recognised inevitably as a common standard
of comparative value, especially for that surplus of
supply which it is desirable to convey from one
place to another. The difference between the price
in silver at the place of purchase, and the expected
price at the place of sale, may be represented as the
gradient of effective demand ; the cost and risk of
transit, the friction to be overcome : all of which
have to be estimated with as much accuracy as may
be. There is a certain definiteness thus given, not
only to calculations, but still more to the informa-
ion, often coming from distant quarters and
through uncertain channels, upon which action
must be taken.
19. Moreover, most commodities are compara-
ively bulky and perishable, and barter is thus
tnpeded with the friction of heavy charges both
ways. It is true, permanent trade must depend
upon the ever-recurring demand for consumable
articles ; still the precious metals run lightly,
THE PRIMARY USES OF METALLIC MONEY. 29
because their friction is so small, and they are thus
specially fitted to carry out any one-sided operation
which the casual exigencies of any one country may
require. Again, at all times, as indeed now also,
enterprising men, the born pioneers of commercial
intercourse, must have had occasion to reason with
themselves somewhat to this effect : " I hear much
of the products of this distant region, and am quite
satisfied that some of them would suit the wants of
my countrymen very well. They are priced cheaply
enough in money, but, until I have tried, I cannot
tell whether or not they can be obtained in any
quantity, nor do I very well know what any one
there will buy from me in exchange. If I take
merchandise, it will cost me much to carry, and
may get spoilt on the road ; and when I get there I
may find that I have not brought the right things
after all, or they may not like them at first, what-
ever they may think by and by ; or they may drive
a hard bargain with me, knowing very well how
much it will cost me to carry my goods back," and
so on. " But gold and silver I can carry secretly,
and at very little cost. They will take that if they
will take anything, and if at the worst my venture
comes to nought, I can bring back my treasure
uninjured." No doubt precious stones, which to a
large extent can serve the same purposes as the
precious metals, have, in some stages of society,
been largely utilised as money for such reasons as
these, and have been more largely in request in
consequence ; but while such jewels are only
Jewels.
30
MONEY AND VALUE.
CHAP. I.
Commerce
extended
by experi-
ment.
adapted to the comparatively narrow circle of the
wealthy, gold and silver can be divided and sub-
divided, and massed again with the greatest ease
and no appreciable loss. They can be fitted to
great and small wants alike ; a finer edge is thus
given to the wedge, and one which can better be
applied to any part of the mass which has to be
penetrated.
20. Those only who will be at the pains to realize
something of the true spirit of commercial enter-
prise can appreciate the weight that should be
given to considerations of this nature. The boldest
soldier, entering upon a new and unknown country,
must look well to his means of retreat, or fall under
such censure for culpable recklessness as would be
quite incompatible with any higher claims to
generalship, All commerce all this work of
adaptation and adjustment has ever depended as
much upon experiment as any of the applied
sciences. Even at the risk of seeming to carry
this side of my argument to an extreme, I would
say further, that, but for this spirit of enterprise,
prompting "the merchant adventurer" to incur
freely the risk of experiments, while judiciously
selecting the best means of carrying them out, the
use of the precious metals as money would have
been altogether inconsiderable. For the demand
of the average of mankind is not only capricious,
but unintelligent, wanting in forethought to an
amazing degree, and lacking the power to realize
the advantages or disadvantages which must
THE PRIMARY USES OF METALLIC MONEY. 31
inevitably arise from changed conditions until they
are actually present to their senses. Instead of the
alternations of scarcity and abundance, we should
too often have to read of famine and reckless waste,
if those to whom the work falls of adjusting supply
to demand had not the energy to carry out their
work under the heaviest discouragement. They
have much need of a wedge to open up ways
closed, though closed only by ignorance or apathy.
The channel once opened, the stream of products!
of present utility flows readily, according to itsj
natural gradient. They have to deal the more
largely in the material form of money, because the
advantages which may be derived from the inter-
change of commodities which satisfy real wants
are often so tardily perceived. The ignorant many
neither know, nor care to know, on what the value
of money rests, any more than why the moon rises,
or why the tides ebb and flow ; equally they care
little for future contingencies ; but they have
become familiar with money, and desire it intensely,
though only knowing vaguely, and in a very narrow
sense, why it is well with those who have it. The
feeling of pride or of security associated with its
possession takes off attention from the drawback
that they are getting no increase from it, the more
so as the burden can be so easily shifted as soon as
it is felt. Probably one of the last truths they
would be likely to recognise is that in one way or
other they are as a body compelled to save, and
are thus enabled to recoup the outlay of those who
32
MONEY AND VALUE.
CHAP. I.
Indestruc-
tibility
gives
stability
to their
value.
have preserved some needful commodity which they
would have wasted. Improvident tribes or nations
are poor because they are generally self-indulgent
and waste their powers of production, and they
have in the aggregate little to offer in exchange
with others. But the quantity of actual money
used by them is comparatively large, for the most
obvious and necessary savings have to be made
through its agency. Often it is that the trader's
demand, which can be made effective only by the
use of such money, takes the place of conscious and
intelligent economy, and the trader's supply satis-
fies the wants or tempts the desires of the former
seller by replacing ready prepared in his hand that
which his own forethought would never have
secured to him.
21. There is yet another property of the precious
metals which makes their natural use more certainly
beneficial for these special purposes of adjustment.
If they were perishable if the dread of periodical
supply were likely to urge holders to get rid of
them (that is to buy), on any terms they could,
their operations, from the general point of view of
those interested in the continuity of the supply
of commodities, would frequently be mischievous,
and an aggravation of the evils which the
primary use of money is calculated to mitigate.
Every buyer wishes to purchase cheap, but the
very act of buying increases the demand,, and is a
weight in the scale against himself. Conversely
with every seller. Dealings in money reverse the
THE PRIMARY USES OF METALLIC MONEY. 33
terms, but do not escape the operation of the rule.
Normally interchanges, whether by purchase and
sale, or by barter, tend towards the equalisation of
supply and of value ; but when made under the
pressure of fear, from whatever cause it may arise,
the aberration from normal values is extreme, and
apt to be in the last degree injurious. Especially
if the money, which is the specific representative of
general purchasing power, were itself subject to
such a pressure, the terms dear and cheap would
cease to have a specific significance, the whole order
of trade would be inverted and become unintelli-
gible to by far the greater number of those con-
cerned in it. But the result would be that the
commodities taken in exchange for money would
be sent in different directions, not in accordance
with the relative wants of consumers, but with the
view of forcibly redistributing, not only the burden,
but the prospective loss entailed by holding a form
of money itself liable to depreciation. Both the
monetary system and that of every industry con-
nected with it would thus be very severely strained.
But the owner of money made of the precious
metals can seldom be under any temptation to
aggravate the inequalities which it is his special
function to adjust. If his money yield him no
natural increase on the one hand, neither does it
suffer from natural decay on the other. As the less
of two evils he can afford to wait till a fitting
occasion be found for the use of his treasure.
Obviously he will only make bad worse by entering
CHAP. I.
34
MONEY AND VALUE.
CHAP. I.
Increased
quantity
leads to
decreased
value.
into transactions which the natural course of events
will not ultimately justify. If he do this by error
of judgment the direct loss is his own, and he
suffers more promptly and severely than the com-
munity to whom he has not rendered suitable
service, and who are under no sort of obligation to
accept the over- supply he may offer to them of com-
modities comparatively perishable, the consumption
of which can rarely be suddenly increased to any
large extent. The fact that money can be held at
no appreciable cost gives practically an elasticity to
it ; for, though the whole quantity held retains its
potential value, only that variable portion for which
a suitable use can be found is actively employed.
Some serves for ordinary uses, some for more special
occasions, while all the hoards are fully drained
only on exceptional emergencies.
22. Still the same rule applies throughout, in
duly modified degree, to the limits within which
the precious metals can be utilised as money. Asso-
ciating it with the idea of traffic with foreigners
and strangers in distant parts, the practical neces-
sity of having the reserve of purchasing power in
a specific and tangible form independently recog-
nised by all, is more apparent. The average
quantities held will be the greater, as more corn-
complicated and indirect adjustments of trade
become practicable ; and though the ultimate
objects of these operations remain the same, there
will be, especially in the earlier stages of civilisation,
greater necessity for the use of such money.
THE PRIMARY USES OF METALLIC MONEY. 35
But payments in the precious metals cannot be
made continuously by one country to another
except, indeed, on a comparatively limited scale.
The periodical waste is small and slow, and the
amounts are steadily cumulative. A State which
produces gold or silver in any large quantities has
indeed no means of maintaining its value but by
exporting it ; for the attempt to force an increasing
quantity into use, unless there be also a corre-
sponding increase in the special uses for it, can end
only in lessening the value of the whole. If we
represent the quantity of the commodities parted
with for money on the conditions already laid
down (14), by say 100, the treasure which is the
equivalent of them must be taken as 100 also.
But if the latter be increased to 120, other con-
ditions remaining the same, the only conceivable
means of equation is the corresponding reduction
of commodities given for each unit of treasure to
the proportion of ten-twelfths to one ; prices rising
apparently in the same ratio inversely. The re-
lative quantities of commodities have to be adjusted
in the same way as if they were exchanged in
direct barter. The way in which such changes are
worked out is clear enough, if only we take care to
follow closely the course of the money itself, and
not the transaction of the individual. The first
holder has more to get rid of, and sooner or later
has to give more that is, according to pre-existing
standards, buys less cheaply ; but when he comes
to sell the commodity bought, the second holders,
D 2
36
MONEY AND VALUE.
having already received more, are just in the same
position, and the adjustment of the actual weight
of money to the value correlated with it is surely
effected. And if it be thus impossible for a State
producing the precious metals to increase the
aggregate value which it can hold, it is equally so
for any other country to receive them continuously
in excess of its wants, without their experiencing
a decrease in value to compensate for the super-
abundance of quantity. The abruptness of any
such fluctuations is softened by the conditions re-
ferred to in the last paragraph, but not the less
surely will the result be brought about in the long
run.
The converse argument holds good in the event
of diminished supply, but in either case the adjust-
ments of supply to the demand for commodities
which are the raison d'etre of money -though
perhaps casually somewhat disturbed and confused,
are substantially only remotely and indirectly
affected. The common standard of comparative
value has indeed shifted, but the symptom is that
prices, which are never supposed to be fixed, range
generally on a higher or lower level, with which all
concerned very soon become familiar.
23. The value and quantity of money which can
be absorbed and held by any one country, and the
value and quantity which can, within any short
period of time, be transmitted from one country
to another, involve very different considerations
and give rise to very different consequences. In
THE PRIMARY USES OF METALLIC MONEY.
the former case any change in value arising from
increased or lessened quantity will be in proportion
to the whole aggregate held within the country.
Gold and silver used as ornaments are of course
specially out of the account, and any quantity
buried, hoarded, or hidden away entirely, cannot
practically be brought into it. But this aggregate
may, and in all probability does, consist of the
balance of the accumulations of many ages. Its
value has been adjusted by the successive opera-
tions of internal and external traffic, but the
amount that can effectively be transmitted from
place to place at any one time for the purposes of
exchange is limited by the surplus of products
immediately available for sale. Taking this surplus
as normally represented by ten, if the attempt is
blindly urged to purchase with treasure to the
extent of twenty, the only result can be that the
prices of products are doubled. But when this
excess of treasure goes into the country, and is
mingled with the large aggregate there held, its
effect may be there represented by one-tenth or
one-hundredth, or even may be so quenched by the
friction which custom opposes to any change as
to become quite inappreciable.
The supply of products will of course be likely
to increase when an unusual inducement is offered
to bring it forward for sale, but here again the
natural law of necessity interposes. Prices must
advance in a far greater ratio than the increase of
supply thus induced, because the sacrifices entailed
38
MONEY AND VALUE.
by even a rigid parsimony, by the exercise of
which some extra supply might be afforded, are
no measure of the sufferings which would result
from selling that which the owners required for
their own urgent needs. Still if a general approxi-
mate equation of values has been effected by refer-
ence to the precious metals as a common measure,
it follows that a change in this standard itself in
one place must lead to repeated efforts for a new
adjustment until the due balance is restored.
24. It thus appears that the aggregate value of
the precious metals used as money is not and
cannot be enhanced merely by the production of
a larger quantity of them. That value can only
be augmented with, and by the increase of, the
peculiar uses found for it in carrying on the work
of the world. A comparatively small supply from
mines or other sources is quite sufficient to make
good the annual waste of money or ornaments,
though with an expanding trade and the growth of
wealth generally a large yield may not be more
than will suffice to support the continuity of the
proportionate value of money.
There is thus a definite, though by no means a
fixed, limit to the value which can be held by any
country. A certain value is required for its
internal uses, and will circulate within it : a cer-
tain portion for its external trade will circulate
between it and all other countries. There will also
be some held in reserve not actively employed,
though indirectly associated with the operations of
THE PRIMARY USES OF METALLIC MONEY. 39
traffic. Thus we hear how in very early times CHAP. i.
Abraham sought a burying-place in the land of
the sons of Heth. The intercourse between these
great men of old does not imply any direct adjust-
ments of the nature which has been described.
But the 400 shekels of silver paid for the purchase
are said to be " current money of the merchant."
As the Patriarch received these from "the mer-
chant," so they would be returned by Ephron for
those uses in commerce which constituted their
value. The convenience of such casual and in-
direct uses of money is an additional inducement
for the rich to keep some part of their wealth in
this form, and increases the total quantity, the
value of which can be maintained. Only in a
highly perfected monetary system is the use of
actual money for such purposes superseded, and
to the present day, for dealings with nations whose
surplus products cannot directly be fitted to ex-
change with our own surplus products, or those"
under our control, we are still obliged to have
recourse to metallic money, which travels by paths
which we cannot follow, and works out adjustments
which we cannot ourselves effect.
25. The case of Spain, loaded with the spoils of Difficulty
| of mone-
metallic wealth drawn from her conquests in the'tising
New World, is a trite but not the less apposite | Spain,
example of the truth of this theorem. But there
was more of real difficulty in her position than is
often supposed. Its treasure could have been
turned to good account only by the exercise of
40 MONEY AND VALUE.
an energy, care, and discretion beyond the know-
ledge of the age. It was positively mischievous,
not only because it gave birth to an exaggerated
pride of wealth, but because also, when put to the
test, there was so little reality in that wealth.
Spain, indeed, might without impoverishment have
spent the revenue drawn from her gold and silver-
producing colonies, and let the treasure go away
altogether ; but it is a very difficult matter to
monetise treasure for the permanent advantage of
any single people or country : it flows out, finding
its own level and leaving no permanent trace
behind. Spending it freely among the population
would only lead to a general rise in the price of
commodities not beneficial to any one. On the con-
trary, this tends only to attract supply from abroad
not required for home consumption, but designed
merely to obtain the superabundant gold, which
would thus be drawn out, leaving the country to
fall back on its own interrupted and weakened
sources of supply. Or suppose a more extended
effort. Gold is sent abroad to buy food for the
support of labourers engaged upon works not
immediately productive, but, when these are com-
pleted, if they are to be made permanently self-
supporting, the supply of hoarded gold must cease,
and the new product has to get into consumption.
It is only a small part of the task to make some-
thing which would be useful if\i were wanted by
those who could give an acceptable equivalent for
it. The real factors of production are the " labour "
THE PRIMARY USES OF METALLIC MONEY.
41
that can work, and " capital " consisting of the
aggregate of things necessary to support labour,
and the attempt to promote it by mere force of
money is very apt not to coincide with the natural
development of industries mutually supporting
each other, and tending to increase together.
Those who have hitherto supplied food for gold
are not, as might hastily be supposed, so dependent
as to be forced to take this new product instead of
it, for they cannot in the nature of things have
sold more than their surplus. New conditions for
free adjustments have arisen with only a somewhat
weak presumption, a priori, that they can now be
effected between the same parties. Heroic attempts
to fit and graft on the industries started with such
money, upon the permanent natural conditions of
industrial life, require also a most heroic capacity
for combination and adjustment.
26. Gold and silver are not names to conjure
with : as far as they constitute money nothing else
can be made of them. Yet are their uses such as
have been described of a most real and practical
kind, fully adequate to account for the high and
universal appreciation in which they have ever
been held, for by their aid man is better able to
provide against those aberrations from the ordinary
course of Nature which from time to time threaten
to beat him down or bear him backwards in the
*
struggle for life. These are often said to be
governed by a " law of average," vaguely con-
ceived as a sort of mitigating influence which, if
CHAP. I.
The law of
average.
42 MONEY AND VALUE.
CHAP. I.
left to itself, will somehow or other prevent any
one from suffering too cruelly. But the security
which a knowledge of this " law " affords is
attained only by exertions and sacrifices of the
same kind as those required to attain the fruits
yielded to toil under any other natural laws. The
beneficence is shown rather in the power with
which man is endowed to see in that law reason to
temper confidence with forethought, and dread with
hope. Self-adjusting the law may indeed be said
to be in the sense that the work required is done
with marvellous efficiency by the half- conscious
exertions of the many engaged in it, controlled and
guided by the experience of generations, and any
rash attempt to set aside the methods so ruled and
developed may be productive of incalculable mis-
chief. But self-adjusting it is not in any other
sense, and though a wise government will be slow
to interfere with the functions of trade which, if
it rightly gauges them, will be found infinitely too
great, complex, and minutely subdivided for it to
assume, yet it should be its study to watch over
and recognise the due scope of its operations ; to
use rather than to supersede its action, if need be,
for the public service ; above all, to relieve it from
needless restraints or artificial monopolies, and as
far as the action of the law or authority can sub-
serve such ends, to purify it from the canker of
false dealing, which is the worst foe to its pro-
sperity. Further, it must be kept in mind that
though trade and productive industries are closely
THE PRIMARY USES OF METALLIC MONEY. 43
allied, the range of the former must be within the
conditions under which the law of average operates
in other words, no skill in distribution can com-
pensate for absolute deficiency in production, how-
ever much it may do to mitigate its most direful
effects. And herein the "Law" of Demand and
Supply, as rightly understood and limited, is
justified. It is propounded subject to the obvious
postulate that the demand must be " effective/'
that is, its scope is confined to those who have
money or money's worth as a means of interchange.
It affords no excuse for the misapplication of the
laissez faire doctrine to those who may be made
destitute by a widespread calamity. On the con-
trary, it clearly indicates the true nature of the
remedy which should be applied. Bring them, if
possible, within the range of distributive organisa-
tion by making their demand effective, rather than
thwart or weaken that organisation at a time when
all its energies are overtaxed. Money in such
emergencies works, in many ways more widely,
cheaply, quickly, and effectively than any other
agent, but the hard fact must be clearly recognised
that only by means outside of the equitable laws
of mutual interchange can it flow to the destitute.
27. The mere fact of material production is often
so completely taken for granted, that the effects
of open traffic are directly misjudged. Thus, in a
time of famine the population of an Indian village
is found to be in danger of starvation. The stores
are empty, for not long since the grain in them
High
degree of
stability
attained
under it.
44 MONEY AND VALUE.
CHAP. I.
was sold. Silver, and with equal discrimination
roads also, are at once set down as the cause of the
destitution. It is not considered that had not the
grower by these very means been made sure of a
market, the grain in all probability would never
have been grown at all. The difficulty in all these
cases is from the extreme poverty of a large portion
of the people who are living from hand to mouth.
It is not so much that a trader has taken away
grain and left rupees, but that the seller of the
grain has not kept any adequate reserve of the
money given, either in specie or in any other form
of permanent value. Mere money is not, and
never can be, the cure for poverty of this sort.
Let us further follow this case as affording fair
illustrations of the principles involved. The notion
of keeping separate and adequate stocks of grain
in every village is doubly irrational. In the first
place, scarcity comes at uncertain, often at distant
periods : there is the strongest tendency both in
men and in governments to forget an oft-deferred
evil. Stores are sure to be neglected, or to dete-
riorate, and the burden of the duty, often not fairly
distributed at the beginning, is done in a per-
functory and inefficient manner. Then again. All
perturbations within the memory of man are com-
paratively of short duration and extended over
limited areas. If, therefore, we submit ourselves
intelligently to this " law of average," a far higher
order of security is attained ; and more than this :
Let the necessary conditions be developed ; that is,
THE PRIMARY USES OF METALLIC MONEY.
45
let there be sufficient production* spread over suffi-
ciently wide and dispersed areas ; let the means of
communication between them be safe and easy, and
an adequate motive for holding the needful reserves
of supply comes within the influence of ordinary
experience. They are wanted now here, now there ;
and the holder's patience is not worn out or suf-
fered to sleep from interminable delays. Money
too is kept ready to do its part, and is especially
useful in lightening exceptionally urgent transac-
tions which are in excess of the ordinary means
of traffic. It helps to spread the cost of hasty
adjustment over more adequate periods. Nor can
I forbear a passing word on the moral aspects of
the contrasted systems. The segregation on the
one side tends to foster suspicion. Every stranger
is a rival, and in a time of apprehended scarcity
the wild desire of every one to make himself safe
is a strong temptation to untimely secret hoarding,
which greatly aggravates the evil. On the other,
the habit of mutual intercourse and interdepen-
dence assuages these fears and mitigates these
tendencies, so perilous in a time of danger. A
more intelligent apprehension of natural law and
higher feelings of social morality go hand in hand.
28. The practical nature of the benefits of
adjustments under the law of average is well
exemplified by the common practice of insurance.
That a very high degree of security is attained by
generalising a large number of riskful items is well
known to all, but that is not quite the point
CHAP. I.
Illustra-
tion.
"Loading"
on the pre-
mium of
insurance.
46
MONEY AND VALUE.
CHAP. I.
The "limit
of perfect
recovery."
referred to. The premium paid is considerably in
excess of the calculated equivalent of the risks
incurred. It is " loaded " to cover the costs of
management and afford a fair profit to the under-
writers. Shrewd men of business pay down this
addition to the calculated equivalent of their losses
at sea, for the compensating advantage of adjusting
these payments to their ordinary incomings, rather
than have to meet them in heavy amounts which
would throw out the continuity of their ordinary
arrangements. Metallic money used in trade
answers very closely in some respects to this
" loading " of the premiums of insurance. It is a
necessary outlay, and though costly, is amply worth
the cost.
29. It may perhaps still be objected that such
facilities for distribution after all only spread the
evils of scarcity over a wider area, but do not
afford any complete remedy for them. It is an
inconvenience, no doubt, for any one district to
be disturbed by an unexpected demand from a
distant quarter, and though the seller, say of
grain, may directly gain as much as his local
customers lose, the indirect disturbance occasioned
may 'be of much more consequence. To this
specific argument it is no reply to say that all
give and take in turn. Still, though it were
shown arithmetically that the evil had only been
diffused, and perhaps increased, by the process, it
by no means follows that important benefits are
not secured to all. As has been before observed,
THE PRIMARY USES OF METALLIC MONEY. 47
there can be no comparison made between the CHAP. i.
several degrees of scarcity. The argument, after
all, is of much the same weight as a calculation
that a hundred men, deprived of a single meal,
suffer as much in the aggregate as three or four
starved to death. Even in mechanics we do not
find that a certain weight makes a "breaking
strain," and every less weight merely causes a less
injury. A "limit of perfect recovery" is soon
reached. Just as it is with a chain which would
be wrenched and broken with a strain of two tons
applied at once, but will raise many thousands of
single tons, and decay at last from other causes
altogether, so it is with men and countries. If
only in the vicissitudes of life the extremity of
pressure can be mitigated, no permanent injury is
suffered. Imperfectly as the work of production
and distribution is carried out, the power of trea-
sure as money has often done this much for suf-
fering humanity, and the traditions of its efficacy
form a part of the long accumulated teachings
of practical experience.
30. The uses of the precious metals have
grown up for the most part entirely without the
aid of laws ordained by any sovereign power.
Authority has sometimes recognised, but far more
often failed to recognise, the true bases of their
value, or the conditions under which they could be
beneficially employed as money. In either case its
influence was only remote and indirect, and helpful
only in so far as it was confined strictly within such
Scope of
authorita-
tive con-
48 . MONEY AND VALUE.
CHAP. I.
limits as may fitly be ascribed to jurisprudence.
If, for example, the scale of current market weights
had got into confusion, or, what is very much the
same thing, if it were a matter of doubt and
uncertainty what proportion of pure metal (which
is all that is accounted of value) should be given
in any weight delivered, the law may, indeed can-
not refuse to, discharge its special function of
deciding on the disputed points of any formal or
informal contract which may be brought before it.
Its decision is a nullity, and settles nothing, if it
do not define peremptorily and exactly what is to
be done in satisfaction of its decree ; and this, for
the most part, will form an authoritative precedent
for the ruling of all subsequent cases. Or if cus-
toms are so conflicting as to entail constant litiga-
tion and public inconvenience, the legislature may
venture to ordain that such and such definitions
apply to such and such terms of weight or capacity ;
but even regulations of this kind must be carried
out with much patience and discrimination, for
when they are broken through ignorance, or still
more by those who take advantage of the ignorance
of others, it is hard to inflict so extreme a penalty
as a denial of justice to the suitor. Arbitrary
power may indeed decide on such points unjustly
for its own benefit, or unwisely from mistaken
policy, and terrify or deceive its subjects into
accepting new terms for all existing obligations ;
but no power on earth can restrain men from being
guided by the practical experiences and by the
THE PRIMARY USES OF METALLIC MONEY. 49
pressing necessities of life. The estimate of any
future comparative values cannot be controlled by
a change in the terms in which they are expressed.
Trade may indeed be driven away and industry
crushed by the attempt, or more probably driven to
subterfuges and concealment, ending generally in
some tacit compromise, much to the discouragement
of open dealing, and serving only to perpetuate some
pedantic absurdity of form required to save the
dignity of baffled authority.
Money is indeed most essentially the agent of free
interchange. Even if turned to the purposes of in-
ternational war it can only work on the free will
of the individual. It may appeal to motives which
are well matched by a traitor's perfidy. Gold is
neither moral nor immoral ; it simply conveys a
most potent and unqualified power of choice. It may
be made the agent of the most subtle temptation }
but cannot be used for direct coercion either in war
or in peace. But these, after all, are but accidental
and perverted uses of it as a medium of exchange
which by no means contribute to the productive
utility which constitutes its value. It may elude
the grasp of legally constituted authority, but its
work cannot be done unless a high standard of in-
tegrity is maintained among those who deal with
it. It may be said to be the most efficient agent of
fraud against force ; but when force and fraud are
thus put into opposition, the term " unjust " applies
equally to both, and each has a claim equally good.
or bad, to fall back upon, the ethics of a state of
CHAP. r.
50 MONEY AND VALUE.
CHAP. I
warfare. The power of money and the privileges
derived from status are often in conflict ; but these
topics will be more fittingly treated hereafter.
Meanwhile we shall often have to look for realities
beneath the surface, to " read between the lines,"
often feeling our way rather by careful induction
than by the direct light of testimony.
CHAPTER II.
(Money.}
EXTENDED USES "OF METALLIC MONEY AND OF
SUBSTITUTES FOR IT.
1. MY argument has not been drawn out merely to
prove the utility of the precious metals as money.
I might well take the verdict of common experience
unquestioned upon that point ; but my object has
rather been from the first to indicate the nature
and the measure of the uses to which they can be
so applied, because, on going further into the
question, we shall soon come face to face with the
appearances which have given rise to the most
opposite and contradictory theories regarding
metallic money. It has been treated of as though
it were the source and. basis of all wealth. It has
been disparaged as though its use were a mere
figment and delusion which should be rejected
altogether as a relic of the barbarous past. We
have thus not merely to inquire what monetary
system is ideally the best, but must endeavour to
see how it is that " money/' admittedly of a very
imperfect character, works at all, to what extent it
may be trusted, and under what circumstances it is
E 2
CHAP. ir.
Contrasted
theories on
Metallic
Money.
52 MONEY AND VALUE.
CHAP. II.
f uncertain and shifting value, or wholly inefficient,
n this relation we must take human nature as we
nd it in all parts of the world, neither forgetting
ts essential points of unity, nor overlooking the
asual differences, which, though comparatively
uperficial, are still perhaps the outcome of the cir-
umstances of many generations, neither imputing
o it qualities which it does not possess, nor as-
uming that whatever is, is right and incapable
f reformation. Moreover, the practical necessity
nust ever be kept in mind of preserving the con-
inuity of all the multifarious transactions which
are, as a matter of fact, carried on by means of
money. Changes in its form or in its terms can only
be made operative subject to this necessity ; but
still under the pressure of necessity, or supposed
necessity, they will be made in a very irregular and
arbitrary way. It is idle to say that the use of
such a medium might be dispensed with altogether,
for we have nothing to do at present with such
notions of an ideally perfect system of interchange.
The same causes which have led to the division of
men into separate countries, kindreds and classes,
required still more strongly the use of a measure
and reserve common to all, but the value of which
was not under the control of any, for the limited
and restricted intercourse which, in spite of wars
and jealousies innumerable, they have contrived to
maintain. But the direct influence of money has
not been in any way to supersede the confidence
which may naturally grow up between man and
METALLIC MONEY AND SUBSTITUTES FOR IT. 53
man. The earliest records afford indications that
trust without any tangible security has always
been a feature of commercial polity. If the direct
mutual transactions of A and B are not equal
in value within any particular period, the balance
may remain over as a matter of account stated in
any terms which may be agreed upon. Debts may
be expressed in corn or oil just as well as in silver.
But this implies the expectation that occasions for
the further adjustment of supply to demand will
shortly arise between the communities with which
A and B are severally concerned. Otherwise, and
in the ever-recurring case that under constantly
changing circumstances, the occasion for new trans-
actions will next arise in quite different quarters,
substantive money will be required. For though
B may trust A, it does not follow that B, who has
no visible sign of wealth to show, will be trusted by
C D and E, and so on. A far-reaching and general
purchasing power is, therefore, required in cases to
which personal confidence does not extend. When
a perfectly intelligent sense of fraternity pervades
the whole world, money may be converted into
silver walls or golden gates, or applied to such
other uses as a transformed society may find for it.
Meanwhile its highest employment is to be a com-
mon link between the sundered tribes of humanity
as far as it can be made to serve that purpose.
2. Although the precious metals are the common
measures of value which can be applied with the
greatest certitude and exactness, and under the
CH\P. II.
Perm an
ence of
weights
used for
money.
54 MONEY AND VALUE.
CHAP. II.
greatest variety of circumstances throughout the
whole civilized world, yet the actual standards of
money value which currently obtain in different
countries are strangely diverse. And the source of
these discrepancies will be found in the vain
attempts which have repeatedly been made to
assign a transcendental fixity of value to money
itself, over and above that which arises from the
working of natural causes, as will appear more clearly
hereafter. But where the simple and rational notion
of a weight of the precious metal as a practical
common measure of exchange value has been pre-
served, there are singular indications of the tenacity
with which the units thus adopted have been recog-
nised for ages. Thus at the present day, for the ex-
ternal trade of the greater part of Southern Asia, we
have the Mexican dollar coming from the most pro-
lific sources of production in the New World, which
maintains with singular precision the weight of the
old Koman ounce. In the north and more ancient
part of China, the only unit of value is a fixed
weight of silver, circulating on the credit of private
bankers as to its purity, which we find to be in the
somewhat strange proportion of f^ths or 92-| per
cent, fine, being the same as that of the old Tower
pound of silver which was the original standard
recognised by Charlemagne, and introduced into
England before the time of the Conquest. The full
weight of the pound troy then was 11 oz. 5 dwt.,
and it would therefore contain as nearly as may
be an old Roman pound weight of pure metal.
METALLIC MONEY AND SUBSTITUTES FOR IT. 55
Again there seems some reason to think that this
Roman ounce, the name of which certainly was
received (OVJKIO) among the various systems cur-
rent among the maritime Greeks, was just one
sixteenth of the Attic mina. Now this Attic
system had been adjusted by Solon in the sixth
century B.C., in the proportion of 72 : 100, to the
Euboic scale, which latter also remained current in
other parts of Greece, and was certainly one of those
used by the Babylonians. The Mexican dollar bears
just this proportion to the tael weight of China,
which, it may be reasonably conjectured, was in
correspondence from a very remote period with the
scale established in Central Asia. 1
1 Two systems of weights came to Greece in early days
from the older civilizations of Asia, the first origin of
which is lost in the still earlier history of the Chaldseans :
the ^Eginetan and the Euboic. They were related to each
other respectively in the proportion of 12 to 10, thus early
indicating the conflict between the decimal and duodecimal
modes of notation. About B.C. 600 Solon, in carrying out
certain great social reforms, including a scheme for the
general relief of debtors, to which it is needless here to
allude further, introduced the Solonian or Attic system,
which, as is commonly said, reduced their indebtedness in
the proportion of 100 to 73. But there seems good reason
for believing that, at all events, the new scale of weights
was adjusted in the proportion of 100 to 72.
I am indebted to Dr. Smith's Dictionary of Greek and
Eoman Antiquities for the summary of the very various
evidences upon this moot point, and my argument upon
them is based chiefly upon considerations of monetary
exigencies.
The quotation cited from Piiscian (art. "Pondera")
56
MONEY AND VALUE.
It is not probable that these are mere coin-
idences, nor is the accordance and perpetuity of
the weights used for the precious metals at all
xplicitly states the small Attic talent to be 60 minse, and
the large talent 83 J mina?, which is equivalent to 100 to
138f, or 72 to 100. If further it be established that the
yEginetan standard was to the Euboic as 6 to 5, and the
same JEginetan to the Attic as 5 to 3, the relation of the
Attic to the Euboic must be 72 : 100, and no other; and
bhis evidence is precise, exact, and to the point, as to the
difference of scale. Eeferences to the terms on which
debts were satisfied are not necessarily so. The debtors
had no claim, as of right, to relief in any exact proportion,
and though 100 new talents were equal in weight to 72
old, it does not follow that neither more nor less than 100
had to be paid in satisfaction of existing debts. Now,
though it is very poor work to explain away little differ-
ences in order to make figures agree, it may be equally
misleading to ignore the fact that certain expenses must be
incurred in carrying out any such composition as that
referred to. If such a difference as that between 72 and
73 were appropriated to be set against the necessary
charges of the operation, just that was done which might
be done to-day under similar circumstances. It is need-
less to inquire in what form such charges were paid.
Assuming, as inherently highly probable, that something
had to be paid, it is perfectly natural that the popular
account of the matter should be that the end of all the
trouble was that, for the weight of 73 old talents, debtors
got rid of crushing claims against them for 100. The
exact adjustment of the old and new scale of weight was
a technical question, and fractions never have been
popular.
It is indeed vain to look for exactitude in any casual
references to money. Just the same kind of discrepancies
which perplex an archaeologist would meet an inquirer
METALLIC MONEY AND SUBSTITUTES FOR IT. 57
incredible, though, as will have been seen, the old
weights may appear disguised under new combina-
tions. The substances dealt with are singularly
into a matter apparently so simple as the relative weights
and value of English and French standard gold coins. In
any book of the day, written perhaps by a banker, a
casual reference might be found to the fact that 20
sovereigns had been changed for 25 napoleons. This is
just what any one would have to do in London who had
to go to a money changer. Nothing apparently can be
more explicit or satisfactory to the casual observer. We
are so much accustomed to find that money can be changed
without any special charge, that not one in a thousand
will reflect that if a money changer is employed at all,
he must make his living out of some difference in the
transaction. A Cambist, however, finds the respective
weights of the 20 sovereigns and the 25 napoleons, instead
of being equal, are 2,465'5 grains for the former and 2,489
for the latter ; but if further he assay the coins and bring
French gold to the English standard, he will find the
difference to be on the other side, the 25 napoleons giving
only 2,443*75 grains of the English standard of purity,
making the 20 sovereigns worth very nearly 25J of the
French coins. And this is as far as a numismatist can go
But if the investigator should happen to light upon the
accounts of a bullion dealer, he would again be thrown
into confusion by finding small differences between the
weight of the coins and the weight of metal transmitted
as equivalents for them, and might have considerable
difficulty in finding out the fact that a specific charge-
under \ per cent. was made in the French mint for the
expenses of coinage, and that a corresponding charge was
made in another form in England. Expenses of this kinc
may very well vary in far larger proportion, and yet be
quite as obscure to all, except those engaged in dealing ii
coin and bullion.
CHAP. II.
58
MONEY AND VALUE.
CHAP. II.
imperishable, and there have ever been, in bye-gone
ages just as much as now, strong reasons for keep-
ing up some intelligible parity between the systems
The fact in this case is that the " par " between French
and English coin is not as 25 to 20, but as 25*225 to 20.
Now if we were to adopt the French monetary system,
and declare 25 napoleons were full value and legal tender
for 20 sovereigns, either all debtors might gain by paying
25 napoleons, when they should (taking weight for weight
of equal purity) have paid 2 5 '225, or the state might
retain this fractional '225 (less than 1 per cent.) if it pro-
vided the supply of new coin. It would serve to go
against the costs of coinage the small loss on taking in
slightly- worn sovereigns, and so on. Charges of this kind
must be incurred for such work in all times and places.
The change made as between debtor and creditor would
thus without any straining not be in the same ratio as
that permanently established between the old and new
coinage. If, to carry the analogy a step further, we were
to accept the napoleon as our unit of value- instead of the
sovereign, debtors would be greatly relieved by being
permitted to pay 21 of these instead of 20 sovereigns,
although a strict conformity with the "new monetary scale,
arbitrarily established, gives 20'18 only as the equivalent.
I do not mistake an argument of this kind for a proof
as to the special point raised, but the discrepancies be-
tween the popular, or even the social and political
estimates of money, may be very much accounted for
by such considerations, while evidence as to consistent
weight and scales is not affected by them.
I have not had the advantage of seeing the argument
of Bockh, to which Dr. Smith refers, and my support of
his conclusion is probably derived from considerations
very different from those which have influenced that
erudite scholar. Be that as it may, I cannot but think
that the balance of probability is very strongly in favour
METALLIC MONEY AND SUBSTITUTES FOR IT. 59
which were brought into commercial connection CHAP. n.
with each other. A simple- and accurate comparison
of actual weights was sufficient for international
of the assumption that the Attic scale was adjusted,
to the Euboic in the exact proportion of 72, not 73 or 75,
to 100.
The weight of the Roman libra at very nearly 5000
grains seems also fairly established; this gives 416 or
417 grains for the uncia, which certainly is the weight
of the Spanish Mexican dollar. The relation of this
weight to the several scales used in Greek trade is not
so clear. One identification suggested is with the
yEginetan half mina of about 5550 grains, which gives
a difference as 9 : 10. The Roman weight, however, is
as nearly as may be three-fourths of the Attic mina, and
the uncia therefore is one-sixteenth, a fraction which is
not in direct accordance with either -the decimal or duo-
decimal scheme of notation. But the binary system,
preserved in our avoirdupois weight, expresses most
directly the half -half -quarter, which is a fraction so fre-
quently arising in the natural experiences of daily life,
that it may well claim to have an exponent of its own,
which it in fact has had from time immemorial through-
out India, where the anna is not only the sixteenth of a
rupee, but is commonly used to express that fraction, just
as the uncia expressed one-twelfth. We thus have the
Roman ounce and Spanish Mexican dollar (equal to one-
sixteenth of the Attic mina) and the Chinese tael
(equal to one-sixteenth of the Euboic mina) standing to
each other in the proportion of 72 to 100, and the Euboic
(the decimal) scale was certainly in use in Central Asia
when riches and civilization there were at their highest
point and the Chinese already a distinct people whose
national continuity has remained unbroken to the present
day. The links of connection are not quite clear, still
we may with comparative safety infer the immutability
MONEY ANT) VALUE.
CHAP. II.
intercourse ; and those who were practically con-
cerned in this work would be in no danger of fall-
ing into the error of supposing they could by any
of the Chinese weight, not only from the conservative
character of the race which looks back to antiquity with
such peculiar veneration, but also from the fact that the
State there has never coined the precious metals, and has
not therefore fallen under the usual temptations to tamper
with its standard of weight. The tendency to confound
weight and value together is however found even here,
where a local tael of silver as delivered by bankers may
differ from the standard tael; such difference being a
compensation for costs of exchange : but as these local
weights are expressed as a fractional difference of a
decimal scale, the connection with the common unit is
clearly maintained.
Nor need any peculiar virtue be attributed to the
Spanish and Mexican governments for keeping up with
comparative fidelity the full weight of the uncia as far as
their coinage is concerned. They had not to deal with a
local and domestic currency, where debasements under one
pretext or another might have passed under the authority
of the royal prerogative. As acting for a silver-producing
country, they had to sell largely and constantly to the
free markets of the world, and a check was thus kept
generally upon attempts to reduce their coins, though
signs of the natural tendency to do so are not wanting ;
indeed the proportion T717 instead of T*720 per 1000
dollars fixed specially for transactions in silver at the time
when the East India Company first traded at Cantoi^
corresponds with a slight debasement in the old Spanish
imperial dollar.
On the other hand any mere investigation into existing
metallic currencies will quickly show how hopelessly the
notions of weight and value have been confused and con-
founded when once local money and coinage have been
METALLIC MONEY AND SUBSTITUTES FOR IT.
61
artificial means give any additional stability to the
value which had become inherent in the precious
metals.
3. On coming, on the other hand, to local systems
which have been made the subject of many pro-
found theories and much very paternal legislation,
we meet with infinite perplexity and confusion.
Monetary troubles have found their way into the
made the subject of formal legislation. Indeed the works
of professed Cambists, however trustworthy as to the
actual coins described, and interesting to numismatists,
usually ignore altogether points most necessary to deter-
mine any monetary problem. Even among the generally
well-selected extracts of the work referred to (though the
true theory is elsewhere recognised) I find one in which a
comparison is made between the weight of ancient silver
coins and the present British shilling, which is in fact a
mere token of the aliquot part of the gold sovereign, and
as far as the principle upon which any rational comparison
can be instituted is concerned, might just as well be made
of tin or copper.
I am far from disparaging the work of those laborious
investigators who have often thrown perhaps all the light
that could be thrown upon a very obscure subject. It is not
that their evidence is to be discredited, but a due regard
to the necessary limitations of the functions of money
must correct the conclusions drawn even by the witnesses
cited. As will be shown more fully in the text, the very
object of authority in tampering with the currency is, as
a rule, to make changes which it does not wish to avow,
or to remedy evils, or worse, imagined evils, the nature
of w^hich has been altogether misunderstood.
My main argument in no way depends upon the con-
currence suggested, but the point appears to me of
sufficient interest to deserve notice.
62 MONEY AND VALUE.
CHAP. II.
uncongenial pages both of ancient and modern
history. Greece and Eome have had to grapple
again and again with the currency question, the
ages of faith were familiar with the debasement of
the coinage, and modern credulity has witnessed
the collapse of paper circulations. I do not refer
to direct tyranny or overt injustice. If a rich man
be condemned on a false accusation in order to
confiscate his wealth, if a strong-handed robber
plunders a town or a caravan, if a greedy king
pulls out the teeth of an unhappy Jew till he ran-
soms his person with solid gold, grievous as are the
wrongs suffered, they do not entail the bewildering
mystification which so much aggravates the evils of
an arbitrary maladjustment of monetary values.
They are, in fact, a more subtle form of disease to
which the more complex forms of civilization are
liable, but the hopelessly contradictory obscurity of
the evidence regarding such changes as these irre-
sistibly suggests the inference that the dicta of
authority ordained one value, while the stronger
law of necessity enforced another. Custom, tradi-
tion, superstition, precedents more or less com-
pletely misinterpreted, fraud subtle and forceful,
sheer ignorance, poverty, greed, necessity have all
exercised their influence on at least the external
forms of money. All kinds of substitutes have
been tried, and even some of the most worthless
have for a while served some purpose. Strongly
as we may be disposed to assert, that the precious
metals are the best common measure of value all
METALLIC MONEY AND SUBSTITUTES FOR IT.
63
over the world, and that therefore they will and
must as a matter of fact be recognised as pre-
eminently money, still it is also a fact that even
mere intrinsically worthless tokens, in no fixed and
assignable relation to gold or silver do, under
certain circumstances and within certain limitations,
form a common measure of value, and constitute
money with which comparatively highly organised
systems of industry can be carried on. Our own
past experience has proved that a nation can both
fight and thrive with a paper currency. Yet in all
cases, popular instincts and sound theory alike cry
out for real money. I trust therefore that I shall
be held justified in having attempted to determine
independently the primary basis of the nature and
value of the precious metals as money before enter-
ing upon the complications arising from abortive
attempts to establish artificial systems in connection
with the higher and more elaborate subdivisions
of labour, the more so as we shall have to come
back to these first principles again and again in
the course of our further investigation. There
have been error and exaggeration in many theories
held to be sound, and the germ of neglected truths
in many which have been rightly rejected as falla-
cious. As a closer analysis will show, functions
of money which are radically distinct have been
confounded together.
4. Danger evidently begins with the introduction
of artificial substitutes for money, and the question
next arises : Into what further and secondary uses
CHAP. II.
Secondary
uses of
metallic
money.
64 MONEY AND VALUE.
CHAP. II.
have the precious metals grown, and how, how far,
and under what conditions can their use be safely
superseded by tokens or by other forms of money \
Eeference has already been made to their use as
forming a world- wide common measure or standard
of value, inasmuch as they are not only universally
known, but their exchangeability can be practically
tested, owing to the ease with which they can be
transported from one place to another. But this
test will not needlessly be applied. They furnish,
even more readily, a means of speculative compari-
son between the value of all and sundry commo-
dities, and a given weight of metal, if only a
sufficiently accurate identification of the true weight
of such a costly substance in different regions can
be afforded. Hence it is that while we cannot but
suppose that the hand, or foot, or pace suggested
the first rough measures of length, the earliest
historical traces of any exact metrical system show
a reference to weights rather than to measures, and
these weights first come to us in connection with
the precious metals. And this use is not the less
important because it is merely inferential. They
thus afford the best basis for determining whether
the actual transport of commodities should be
attempted or avoided. The conclusion may show
an opportunity for barter although the goods
virtually exchanged might be bought and sold
with money already on the spot or for the actual
transport of treasure one way or the other. We have
thus an ideal as well as a material practical utility.
METALLIC MONEY AND SUBSTITUTES FOR IT.
65
Again, as far as transactions were comparatively
infrequent, and of considerable importance, the
metal used no doubt was (as it is now) carefully
scrutinised by those who were competent to judge
of its weight and purity. But as this money came
to be employed more freely among the many who
were familiar with it only as something with which
they could buy with one hand and sell with the
other for their daily needs, no such scrutiny was
natural or indeed possible, and money had to be
taken very much on trust. Hence would arise the
practice of coining, in some form or other, either
under the authority of sovereign power, or by men
of repute whose mark or stamp inspired confidence.
Naturally such coins would be in -the first instance
the simple multiples or fractions of some known
unit of weight, and so far coined and uncoined
money would remain in perfect accordance. But
this important change is begun ; people soon cease
to look so closely for themselves to the weight and
quality of their money, and gradually come to
associate value and purchasing power with the
authority of the mere marks impressed upon their
coins, and as these are worn light by use, the agree-
ment with the original weights becomes more and
more imperfect. But still in many cases the worn
coin will pass more currently than the full weight
in metal, because the receivers are familiar with the
former and are unused to and know nothing about
the exact value of the latter.
This " general recognisability " as far as it
CHAP. II.
Recognis-
ability.
66
MONEY AND VALUE.
CHAP. II.
Modified
use for
subdivided
labour.
extends, is a new element of convenience and
consequently of value, which however is evidently
confined within narrow and arbitrary limits,
though within those limits it may become a very
prominent and important factor of purchasing
power.
5. The want of money which will circulate in
this way is more and more felt as the divisions of
labour become more complex. In a certain sense
there is a division of labour even in the lowest
stages of society, but a broad general distinction
may be drawn between the mere difference of em-
ployment which results in the production of various
commodities, each completed and made ready for
use by one set of labourers ; and the division into
distinct stages of the work necessary to fit any one
commodity to the purposes for which it is ulti-
mately required. In the first case there will be little
use for metallic money except in the way and to
the extent which have already been described. In
the second, new conditions, differing both in kind
and in degree, are introduced. The transfer of such
sub-sections of work does not depend, or depends
only remotely and indirectly, upon the natural
inequalities of production. A work once begun
must go through all its stages to completion, or all
the labour spent upon it will be thrown away, and
as each stage is completed, specific remuneration
will be required. But the man who has done the
special piece of work he has engaged to do earns
his share of such other products as his needs require,
METALLIC MONEY AND SUBSTITUTES FOR IT. 67
and naturally desires to get that unfettered power
of choice which money conveys, rather than direct
payment in particular commodities ; and moreover,
payment in kind is, in such cases, for the most
part out of the question. The practice of making
payments in money tends to become general simply
from considerations of mutual convenience, and
because the greater variety of productions, and
the difference in the quality of the products them-
selves, make the power of choice more to be desired
[i. 4]. Still there is no necessary increase in the
aggregate of commodities held for consumption
or, to use words which more closely represent the
changing circumstances increased production is
balanced by increased consumption with no new
necessity for an increase in the proportionate
balance which has in the aggregate to be held in
reserve. The work in any given community is just
as much as ever an interchange of consumable com-
modities, and men's necessities compel them to use
their money quickly. It gives them a power of
choice, but it does not relieve them from the pres-
sure of wants which can only be satisfied by parting
immediately with it. There is more work for money
than ever, but it has to be done so promptly that
the quantity kept in use cannot possibly be aug-
mented in anything like the same proportion as the
transactions which are carried on by means of its
activity. The greater this activity, the more rapid
the circulation ; money may be more seen, but there
is not more of it required. Nevertheless all these
F 2
CHAP. II.
68 MONEY AND VALUE.
CHAP. II.
\
adjustments cannot be carried out without some
friction. In a vast multiplicity of cases small
amounts of money of purchasing power must
be held in reserve for short periods, so that in the
aggregate there will be a certain additional value
of money constantly held in circulation, and chiefly
employed, it must be observed, within the limit of
transactions in commodities which are in course of
preparation for their final use. There is a special
social circulation in aid of the subdivision of labour.
The money however still in its degree represents a
purchasing power held in suspense, and so far
its utility is of the same kind as before, but not
only is the power of holding it in reserve more
cogently limited, but its use hardly extends beyond
facilitating selection and adapting merely personal
demand to supply. It does not aid in adjusting
the excess and deficiency of production which is
the primary utility of the precious metals as
money.
If the material substance of the money used for
both these purposes is the same, of course no line
can be drawn between, what may be called, these
two funds : but if otherwise, the primary uses will
be served by bullion as I may now call uncoined
gold and silver while the secondary uses may be
served more or less perfectly by money which is
only fitted for local purposes, and which is subject
to chances and vicissitudes which cannot appre-
ciably affect the general value of the precious
metals.
METALLIC MONEY AND SUBSTITUTES FOR IT.
69
6. In regarding local currencies, therefore, we find
that the notion of weight may become gradually
lost, and a notion of value substituted for it,
vaguely based upon custom and authority, but
maintained unconsciously by the fact of mere con-
tinuity of use. Well recognised symbols of little
or no intrinsic value will pass more currently than
any substance, however costly, which is not gene-
rally known as money. Hence it is that a mere
tally or token serves equally well as the metal
itself as long as it is not required to go out of its
proper sphere, and many a paradox in questions of
currency may be explained by the fact that the
apparently most anomalous " money " is nothing
more than a tally. Tallies or substitutes will serve
just as far as, in point of fact and by common
consent, they do circulate freely. That they have
practically a value cannot be denied, but what is
measure of the value of these substitutes, and what
is the nature of the basis on which it rests ?
It has already been shown (I. 22) that the
value of metallic money which can be used for
primary purposes and ' international trade is
strictly limited ; and that the quantity or number
of units tends to increase as long as the supply can
be afforded. But the mere consideration of cost
does not affect their value, except through its effect
upon supply. Precisely the same reasoning applies
to the use of any substitutes for metallic money, but
it must needs be rigorously applied, or an insidious
confusion between weight and value may lead to
CHAP. II.
Value of
" tallies"
depends
solely on
local con-
ditions.
70
MONEY AND VALUE.
CHAP. II.
very erroneous conclusions. The value which de-
pends upon any actually existing relation between
supply and demand is imperative. A certain
quantity of money is required to meet certain
definite wants and represent a certain amount of
value held in suspense. People on the average
will keep very much the same quantity in their
actual possession unless there is some adequate
reason to the contrary, and a reason adequate to
cause any change must be one which appreciably
affects the whole community. And this "law of
average " resolves itself very much into this simple
and undeniable proposition : that, without some
change in the causes which affect society in this
particular way, there can be no change in the
resulting effects. Any uncertainty in the operation
or continuity of such a " law " would indeed be a
reason for dread and surprise. An average demand,
therefore, is by no means a fitful or inadequate
basis of value. On the contrary, none more cer-
tain and absolute could be devised. Substitutes of
inferior intrinsic value may be at first received
with doubt and hesitation into circulation, but,
once established, the difficulty is not to retain, but
to get rid of them again ; for quite irrespective
of the cost of the material of which it may be
made, each unit of current money becomes ab-
solutely vested with its proportionate share of
purchasing power, which is definitely owned by
some one whose rights cannot be ignored. It is
received for so much, and paid away for so much,
METALLIC MONEY AND SUBSTITUTES FOE IT. 71
as long as the balance of demand and supply for
that which, as a matter of fact, does the special
work of money, remains the same. Its want of
intrinsic value does not directly affect either the
magnitude of the transactions, measured by it, or
the aggregate value of the money held. Its value
is not only governed, but governed exclusively,
by this concurrence of circumstance, which may be
termed a natural law.
Any one holding money of this kind must keep
it very much under the same conditions as treasure.
It gives no increase, nor does it waste by natural
decay. No one will retain more than he can make
use of, nor, as far as he has an option, will do with
less. However small its intrinsic worth, each unit
represents an aliquot part of the total of money of
all kinds indifferently, which may make up the
circulation ; and though no one may know what
that total is, the value of the part held is proved
and tested by what it will buy, just as the value
of true metallic money is proved and tested. The
fluctuations which arise from altered conditions of
demand to keep still to this side of the question
are the same, whether the currency is composed
of the metals common to the world as money, or of
tokens of local value only ; but the liability to
violent changes will be, cceteris paribus, greater
when confined within the limits of a single
country, than where the effects of a casual per-
turbation can be diffused over many.
7. Now if the substitues for money are kept clearly
CHAP. IL
72
MONEY AND VALUE.
CHAP. II.
Exchange-
able local
"tallies"
maintain
their value.
within the value required for local uses, while, side
by side with them, the metallic originals remain
in circulation, any excess which may arise in the
aggregate quantity of the home currency flows
naturally out. Even if not specially required for
external trade, the increase which would cause a
very detrimental aberration in local value is lost
ere long in the vast ocean of the circulation of the
world. Equally the same great source supplies
any deficiency as long as a place is kept open for
the influx of the metallic portion of the currency
which thus comes and goes as required, and the same
standard or common measure of value is preserved
throughout. As long as the " tally " can be freely
exchanged for (say) gold at the option of the
holder, there can be no doubt that the value,
howsoever it may be based, is practically guarded
and supported on all sides, not only by the costli-
ness of gold, but also by the universality of demand
for it ; and with it retains that degree of stability
which results from the most widely- extended
average of demand and supply. As long as these
conditions are fulfilled, the use of tallies or substi-
tutes has not been carried so far as to throw local
currency out of due and exact accordance with the
general standard. The aggregate value of money
used to facilitate the local current interchange of
consumable commodities, including all transfers of
incomplete work required to carry out all the
multiform sub- divisions of labour, may safely be
carried on by such tallies. A certain number will
METALLIC MONEY AND SUBSTITUTES FOR IT.
73
always be thus kept in useful employment, and
there is no reason whatever to seek to withdraw
them from it. They are not designed or adapted
to fulfil, nor are they required to fulfil, other more
general purposes of money.
The connection between the local and general
currency thus secured is something like that main-
tained by joining a small tank to a large reservoir.
If only the connection be not altogether obstructed,
the excess or deficiency of the smaller supply is
constantly made good. Any variation between the
corresponding levels above the line of connection on
either side is met by a proportionate increase of
pressure on one side or the other. Below that level
there is no such pressure, and it matters not from
what independent sources the inferior supplies may
be drawn.
For the ultimate readjustment of the larger
aberrations of production the precious metals are
not the less required : and, as the integrity of local
money should not merely be maintained but amply
secured by adequate reserves, some further value
may be advantageously employed to make up the
casual ebb and flow of such local currencies. Still
the aggregate use of the precious metals as money
is not necessarily very much increased.
8. The precious metals may, however, flow out of
a country from the exigencies of external traffic : a
reduction in the quantity of money will evidently
be the result ; and this contingency deserves some
special consideration, for very similar appearances
74 MONEY AND VALUE.
arise from remoter causes which may be very
different. An export of money implies an effec-
tive demand for the foreign commodities taken in
exchange for it, and may equally arise from a
comparatively urgent want of the latter or a super-
fluity of the former. The first effect of the conse-
quent scarcity will be to raise the value of any
given quantity or unit of money, in relation to
all disposable commodities in the region specially
affected : that is, they will be cheaper with reference
to the general scale of monetary value. A re-
adjustment naturally follows, unless the exigencies
of demand for local consumption counteract the
tendency. In that case prices will not fall, but
the presumption afforded of an actual decrease in
wealth is a very strong one. For the measure of
value common to all the world, and which is not
likely to be appreciably affected by merely local
causes, shows that a less value of money measures
the total balance of disposable commodities. . No
change in the mere form of money can meet such a
case as this. It is a question of the right employ-
ment of capital and industry, which will assuredly
lead to an effective demand for a certain proportion
of metallic money as soon as they have again
created new uses for it. But the export of money
has not been the cause of the poverty, but the
recognition of the legitimate effect of it : for there
is no use to be found for the excess of metallic
money at home, and nothing whatever can be
gained by hoarding it. A congestion of money,
METALLIC MONEY AND SUBSTITUTES FOR IT. 75
arising from diminished circulation, has been re-
lieved, and an undue fall of relative prices is
prevented by the natural export. A poor country
is pro tanto the better, not the worse off, from
having got rid of a superfluity ; though if the
causes, whether moral or physical, of its penury are
persistent, the advantage gained is very small and
transitory.
The normal effect of a reduction in the quantity
of money is, of course, a rise in its value leading
to a fall in relative prices which will quickly draw
back the required supply. Bearing in mind that
the value of money which can be utilised is very
greatly less than the total value of commodities
which can be made available for international
exchange, a comparatively small effect upon prices
is quite adequate to bring about this result. Low
relative prices provoke both buyers and sellers to
reciprocal action, and as a change in the value of
money casually affects the vastly larger aggregate
of all commodities generally, the field over which
this inducement may exceptionally operate is inde-
finitely extended. Moreover, a relative scarcity of
metallic money and consequent low range of prices
in one place necessarily implies in some degree the
reversed conditions elsewhere. Given the condition
of wealth in such commodities as can generally be
made serviceable directly or indirectly to the world
at large, and the adjustment of their value to
the common standard will follow in due course of
time without any undue strain. The process of
76
MONEY AND VALUE.
CHAP. II.
Conse-
quences of
a rise in
metallic
money.
adjustment, however, being ever like the move-
ment of a pendulum always in relation to a mean,
but never resting in it.
9. Before proceeding further to consider the use
or abuse of substitutes, it will be well to refer
briefly to the effect of marked changes in the more
permanent value of the precious metals themselves.
It is liable to be affected not only by increase or
reduction of current supply, but by the increase
of wealth during times of general peace, or by
widespread desolation in times of war, or new inter-
national relations may be opened up with countries
previously isolated. It is quite possible that
a local scarcity or redundancy of money may
arise from circumstances quite independent of
the immediate relations of the country affected,
and the consequent perturbations may be of suf-
ficient strength and duration to make it evident
that the common measure of value has been itself
the subject of change. The operations of inter-
change involving chiefly the primary use of money
are nevertheless adjusted without difficulty.
Different prices, that is, different weights of metal,
are constantly being given for commodities as cir-
cumstances may require, and nothing suggests the
idea of fixity on one side or the other. But as regards
the more popular and social uses of current money,
the notion of value tends to predominate ; and
because the precious metals have been found to be
the best common measure and standard of value
METALLIC MONEY AND SUBSTITUTES FOR IT.
for all the purposes of industry at any one time, it
is very readily taken for granted that they will
continue to be so at all times. Though this notion
may very naturally arise, it is not the less in excess
of the truth, and is the evident source of many of
the fallacies which have beset successive theories of
money. AY hen a scarcity of metallic money arises,
inconvenience is chiefly felt where contracts extend-
ing over long periods have been entered into, or
certain money payments have become fixed by use
or custom rather than by adjustment according to
the varying conditions which govern relative value.
The stability of the value of money being unduly
exaggerated, a sense of wrong is apt to arise when
this confidence is disturbed, which often vaguely
and blindly seeks remedies which serve only to
aggravate the evil. Money is scarce and harder to
get than it used to be. Prices of commodities are
lower, but this does not attract so much attention
because they have always been subject to fluctua-
tions. It is more difficult to keep fixed debts
down ; they accumulate year by year. Customary
wages may remain the same, but with this pressure
it appears that fewer can afford to pay them. The
weight of the burdens of life is not distributed as
before, but falls with increasingly intolerable sever-
ity upon some classes. If the sentiment of even-
handed justice and perfect "altruism" prevailed
if every man could appraise his neighbour's work
on the same scale as his own, the readjustment o1
prices to the changed value of money would very
CHAP. II.
78 MONEY AND VALUE.
CHAP. II.
soon be found. If even " enlightened views of self-
interest " induced a general willingness to consent
to the expression of something like the old range
of value in the new terms required, the difficulty
would be reduced to a mere matter of troublesome
estimate and calculation. All the material essen-
tials of prosperity remain the same. But as the
world goes, producers see only that they are
wronged by continued low prices, and creditors
who hold obligations expressed in appreciated
money insist on the strict letter of their " rights,"
and the pressure may thus well come to a breaking
strain.
The reductions of the weight of metallic money
recorded in ancient history, which have been already
referred to, must in all probability have taken place
under such circumstances as these. For the reduc-
tion of the weight of money implies a correspond-
ing reduction in the rate of all payments to poor
and rich alike, which is hardly conceivable except
on the supposition that there had previously been
a corresponding fall in the money price of commo-
dities. The changes indeed appear to have been a
settlement by compromise after a long period of
pressure and uncertainty. The impossibility of
getting payment in full from debtors would incline
creditors to accept a modification of their claims,
who indeed, for reasons which will be sufficiently
obvious, might prefer a reduction in the value of
the money in which they were to be paid, rather
than a change in the formal terms of their contracts.
METALLIC MONEY AND SUBSTITUTES FOR IT. 79
Vulgar needs may have been met by expedients
beneath the notice of the historian, nor can any
close analogy Be drawn between the requirements
of a society comprising a large numerical majority
of slaves, receiving their means of subsistence in
kind, and those of a free population receiving wages
in money, as a matter more or less of contract or of
customary right.
The same considerations should be kept in mind
when judging of our own early coinages. During
the five centuries down to the beginning of the
sixteenth, the weight of the silver standard pound
was gradually reduced in the proportion of a
hundred to fifty-three. Looking to the condition
of the nations of Europe and of Asia during the
period, an enhancement in the value of the metal
in a somewhat similar ratio is by no means im-
probable ; and if this were so, the changes which
seem to have worked smoothly were probably not
t>n the whole injurious. Then follows a short period
of palpable debasement and consequent confusion.
The reduction of the French livre (originally the
same as the English pound) to less than one-
twentieth of that weight, and of the Scotch to
one-twelfth of the English "pound," are at best
outrageous exaggerations of any conceivable appre-
ciation of the metal, and the evils consequent on
these debasements are notorious.
It would be a dangerous error to suppose that all
reductions in the weight of metallic money were
palpable and unmitigated frauds. There always have
80
MONEY AND VALUE.
CHAP. II.
change in
a measure
of length.
been and ever will be very specious reasons in favour
of such changes, though the desired ends might be
obtained by other means. It is lather against
fallacies, and the one-sided, partial, and inequitable
action taken upon them, that we have to be on our
guard, especially the tendency to throw off as un-
just any burden merely because it is unforeseen
and ^exceptional ; and this is very apt to be the
case when theories, unduly extended, break down
under the pressure of natural conditions which
have not been duly anticipated.
The known or reputed success of any such ex-
pedients as those which have just been referred to
would in any event greatly favour the notion that
money could be created or its value controlled by
the authority of the State, and the traditions of
them, however imperfectly understood, would be
sure to be quoted as a precedent in times of financial
embarrassment in favour of attempts to regulate the
currency by legal enactments. Such cases at least
afford some illustration of the principles involved,
and will serve as a contrast to show the different
effect of measures which, under the specious guise
of avoiding all change, are in reality of a far more
subversive tendency.
10. Further to illustrate the working of such a
change in the correspondence between the quantity
and the value of money, let us suppose the case
of a clothier whose measuring- tape had gradually
stretched by use. It will not be to the point to
assume a dealer's weights reduced by wear, for, in
METALLIC MONEY AND SUBSTITUTES FOR IT. 81
money, value and quantity change inversely, and an
increasing "purchasing power" must be given to
the clothier's ell. As far as he both bought and
sold with the same measure there would be very
little difference in the result. The weaver if paid
in kind would give cloth and receive back his coat,
leaving a remnant for the clothier's recompence as
before. Only the man's coat would be too big for
him, and, if the measure remained unchallenged,
the general deterioration of the race might be in-
ferred on such grounds, much to the concern of
the statisticians of the period. But as weavers
have other wants than coats and clothiers other
customers than weavers, their dealings would be
carried on by the common medium of money,
which, as we cannot well deal with two shifting
measure at once, we must (simply inverting the
terms of the case) assume to be a fixed value. The
weaver then, gradually finding out that he had to
do more work for his pay and consequently could
earn less, would stand out for more money. The
clothier would naturally appeal to his accustomed
measure, possibly ask whether it had changed last
week, or last year, or on any day in particular, and
his view of the question would probably be that
weavers were growing idle and luxurious. Still
sooner or later he must give way, and has then no
choice but to make a corresponding increase in his
charges to his customers ; or he would be squeezed
out of life altogether, and they notwithstanding
their alleged attenuation would have to pay just
CHAP. II.
82 MONEY AND VALUE.
CHAP. II.
as much for their coats as their fathers before them,
and, perhaps, might regret generally that they had
not had the good luck to be born clothiers them-
selves. But in truth the friction has been work-
ing against both these industries, though, allowing
for that, the interchange of commodities for the
satisfaction of actual wants has gone on throughout
substantially on the same terms.
But if we may suppose a weaver to be under a
long contract to supply cloth or to have to pay
rent for his looms in it or to have gone struggling
on for years always with a balance against him
carried on and on in the lengthening ell without
correction the burden in course of time becomes
intolerable. No opportunities have been afforded
of gradually readjusting natural values to the
changing measure, and the unfortunate debtor in
the last case loses virtually not only on the balance,
but on every delivery which he makes by way of
payment. What is the remedy ? We who know
all about the clothier's expanding measure can say
at once, " Call the old debtors together and arbi-
trate their accounts as nearly as possible according
to the original ell, and take care that the standard
measure of the trade is not exposed to any such
aberrations in future."
Peremptorily to order the interpretation of
recent contracts by an obsolete scale, on the
ground that that was the only true and proper ell,
would be a manifest injustice. If the old measure
is restored, means must be provided for readily
METALLIC MONEY AND SUBSTITUTES FOR IT. 83
translating all recent agreements into the terms
re-ordained.
. 11. The weak point of the simile is, of course,
the change supposed in a measure of length, which
evidently could have been tested and corrected in
so many ways. But, reverting to the case oJ
money, we have to deal with the fact that the
standard of value is not in any such manner open
to verification, while we are so used to refer to
money as a common standard that it requires a
very considerable effort of mind to conceive of
money itself as measured by all commodities.
Practically it is useless to try to reduce deduc-
tions, drawn from any such generalizations, into
terms which at once recognise this undoubted
truth, and yet can be so commonly understood as
to be fitted for practical use. In popular appre-
hension relief is to be found for prices too high or
too low : money may be scarce or abundant, but
that (in any such sense as we are now considering)
it should be cheap or dear is not a notion readily
entertained. Nor is this reluctance altogether
unreasonable. Money generally is, and always
may and ought to be, the best measure of " value
in exchange " which the world can afford, and it is
an infinite convenience to take this nearest prac-
tical approximation to stability as an accepted
datum. Just as the supposed weaver would say,
' When I made my contract to give so many ells
of cloth, the price of it was much lower," so a man
owing money which had become scarcer would say,
CHAP. II.
Difficulty
of deter-'
mining tht
value of
money
itself.
84
MONEY AND VALUE.
CHAP. II.
Conditions
tending to
the issue of
substitutes
"Times were easier when I signed my bond, and
I could then get more for my produce ; " and each
of them would be totally unable to express the
state of his altered relations except in these,
inverted, terms.
1 2. It is one thing to recognise as a fact that the
stability of the value of the precious metals rests only
on a world- wide average conditioned by their natural
costliness, and quite another to devise any remedies
for its aberrations, which shall not cause perturba-
tions infinitely greater and more pernicious than
those which they are intended to counteract. It
is safe to say, that, whether the reduction of the
weight of current metallic money did or did not
restore a former standard of value as measured in
commodities, the local currency so dealt with would
certainly remain in accordance with the general
standard of the world, for a mere change in the
weight of the unit could never impede the influx
or efflux of the precious metals. Eelative values
remain unchanged, and would quickly be reduced
to the new scale by a simple process of arithmetic.
In dealing also with an ideal case it was easy to
show how directly special cases could be met where
what may be called an equitable claim for relief
could be made out. But in actual experience any
such cases as these are extremely difficult to
identify and separate. The effects arising from
a scarcity of money cannot be by any means
striking in any single instance. Other commo-
dities are constantly fluctuating, actually as well as
METALLIC MONEY AND SUBSTITUTES FOR IT. 85
ostensibly. Men grow rich by good fortune and
industry, or grow poor by thriftlessness and mis-
adventure. Who is to decide which out of many
possible causes are those which have led to indi-
vidual failure 1 One noticeable feature, however,
when money is becoming really scarce, is sure to be
the friction imposed by custom to the natural re-
adjustment of prices. Considering how keen is the
struggle for life and wealth in all ages how often
custom will interpose to mitigate the excessive
strain on hardly- pressed classes how indeed there
must be some approved utility in a custom, or it
would never be established at all it is no wonder
that those in whose favour a custom may operate
should hold fast to their "rights," and be sup-
ported in them by general sympathy. There is no
evident cause, such as the failure of an annual
crop, to account for and justify a change. What
tells in the long run is that a weight so small as
not to attract attention is constantly thrown into
one scale. Money does not come to hand so readily
as it used to do. To recognise the fact that the
same weight of metal may go further as money,
requires a change in the association of ideas which
is not easy, and requires a very uncongenial exer-
cise of thought. Experience indeed would prove
to demonstration the more recondite truth, but
that it is not always permitted to do. At first
sight it often seems as if it would be much more
easy for us to change circumstances than to adapt
ourselves to them. All admit that prices must rise
CHAP. II.
86
MONEY AND VALUE.
CHAP. II.
Direct
effect of
over- issue.
and fall, but the cry as of suffering comes from the
side of those who, with no abstract idea of value,
only want, and think they " ought " to have, the
same quantity of money as before. The logic is
one-sided and not consistent, but it brings the
fact of the reduced quantity of money into pro-
minence. Here is the apparent cause of the evil :
and if it is supposed that money can be made by
the dictum of authority, the short way out of it is
evidently to make good the deficiency by the issue
of substitutes.
13. But have we not got to this point before ?
Yes ; but under very different conditions. I then
showed (I. 37) the place in the circulation which
substitutes for metallic money might safely hold,
and that as long as they were convertible into it
and in fact representatives of the precious metals,
they were suitable for all purposes of local currency.
Now, however, we have lost sight of this basis for
a common measure of value. It is, in fact, though
perhaps not consciously, discarded as inadequate
and inconsistent, and the attempt is made to fix
and maintain a local standard of value, instead of
conforming (not real values but) the terms in which
value is expressed to the world-wide standard.
The case will probably be made most clear by
stating it in direct and converse terms :
Money, meaning metallic money, has become
scarcer and consequently dearer ; therefore every
unit of it has a proportionate large "purchasing
power : " that is, commodities are relatively cheap.
METALLIC MONEY AND SUBSTITUTES FOR IT.
Notwithstanding this, the influence of custom
induces men generally to look for as large a quantity
of money as before, which it is, ex hypothesi, im-
possible for them to get.
To supply this want substitutes for money are
issued with the result that the desired quantity of
money is afforded : but the " purchasing power "
divided among a larger number of units, falls pro-
portionably for each of them, and current local
prices rise accordingly.
But the purchasing power of metallic money is
supported by the world-wide demand and can-
not therefore so fall in relation to commodities
generally.
Being thus artificially disparaged locally, it will
tend strongly to flow out, or be drawn out, to those
places where it maintains the higher value in
exchange for commodities.
The influx of commodities, thus artificially stimu-
lated, tends to depress local prices casually, owing
to excessive supply; and further, the outflow of
metallic money again reduces the total quantity in
circulation, and tends still more, and more per-
manently, to depress the relative value of all
commodities.
If the issue of substitutes should be now ar-
rested when the aggregate of the money in circula-
tion is on the same scale of value as that of metallic
money, no further export of that money will follow,
but in this case the first object of the operations
will be abandoned.
CHAP. II.
MONEY AND VALUE.
CHAP. II.
Substi-
tutes and
metallic
money
contrasted
Substi-
tutes can-
not "iiow
out " of
circula-
tion.
But the apparent necessity has arisen more
strongly than ever for a further issue of substitutes
to restore the desired number of units of money.
If they are so issued the same effects as before
must follow till by degrees all metallic money is
eliminated from the local circulation.
A new and isolated measure of value is thus
established, the quantity of which may be indefi-
nitely increased. The precious metals will still be
required for external commercial intercourse and
held accordingly, but will not be in any definite
and determinate relation to the local currency.
The respective bases of the two currencies may
be thus contrasted :
Substitutes for money represent an aggregate of
purchasing power held in suspense, within the
limited area in which they circulate, the number
of units of which can be increased at a merely
nominal cost at the discretion of the sovereign
power.
Gold and silver used as money represent the
same power generalised with a very high degree
of efficiency throughout the whole world, the
number of units of which cannot be increased at
will, but is subject to a high natural cost of
production.
1 4. I have put forward the case of the over-issue
of (inconvertible) substitutes under the most favour-
able circumstances. The fact of an appreciation of
metallic money has been conceded, though it is
practically a very difficult matter to prove until
METALLIC MONEY AND SUBSTITUTES FOR IT.
after the change has made so much progress that
the new standard has been practically adopted for
a large proportion of current transactions. For the
sake of argument, the increase in the quantity of
money of all kinds may further be assumed merely
to have kept the value down to its former level.
Does this warrant the inference that the stability
of money as a persistent measure of value may
be secured by a judicious issue of money -tokens
without any regard to gold and silver? If they
are required as commodities for foreign trade, why
should they not be bought and sold in local money
like any other commodities ? This form of the
question is open to the fatal objection that it
covertly assumes the very point to be determined.
No one denies that the precious metals can be
so bought and sold, nor can there be any doubt
that value is secured to token-money by the natural
law of demand and supply, just as peremptorily as
it is to metallic money. But this is not the issue.
What we want to ascertain is whether the precious
metals, under the conditions which actually do
govern their value throughout the world, are or
are not a more equable measure of value than
any substitutes which can be used as money under
the control and direction of individual skill and
foresight ; or to come, perhaps, still more closely
to the point, whether by any artificial scheme
which can be devised and carried out, a yet higher
degree of equability can be secured than that
which the precious metals naturally afford.
CHAP.
90 MONEY AND VALUE.
CHAP. II.
I have already shown how, speaking generally,
the precious metals are set apart specially for use
as money. No gain can be made out of them
unless actively employed, while there is on the
other hand no inducement to force them into
circulation apart from the advantages to be found
by making them available as money. They work
as it were automatically because they are pre-
eminently fitted for this use, and, for the most
part, for no other. The " sanctions " of this great
natural law of adaptation are far stronger and more
subtle than any which could be imposed by au-
thority, the weakness of which latter becomes
apparent when put to the test of what it really
can effect. Granting that it may so happen that
a local issue may maintain for a time a previous
standard of value better than the common measure
of value, if that should have been exposed to ex-
traordinary perturbations, it is totally against all
experience to suppose that any one country can
itself be for any long time exempt from natural
changes. Sometimes more money will be required,
sometimes less, and, to preserve a fixity of value,
money must be withdrawn from, as well as put
into, circulation. Here is the crucial test. Metallic
money when not wanted in the currency would
naturally flow in or out on any variation from
the general level, but local tokens cannot dispose
of themselves in this way. There cannot be a
greater mistake than to suppose in a vague way
that if good money flows in, it will take the place
METALLIC MONEY AND SUBSTITUTES FOR IT. 91
of bad ; the latter if depreciated retains, locally, a
value which is definitely owned by some one whose
right as an individual cannot be ignored, but must
be bought out if the token is to be withdrawn.
15. But it may be said tokens cost little or
nothing, and so can be hoarded without expense.
Why not issue and withdraw them as they may be
wanted ? It is true they cost nothing and have no
intrinsic value of their own, but not the less every
unit is intended to represent pro tanto a certain
purchasing power, and the authority which issues
them has to deal with substantive values not the
less because it deals with them indirectly. Say that
the State pays its debts or current obligations by
the issue of tokens instead of by money drawn to
its coffers by direct taxation. Every holder has in
some shape given value for them, and they can be
repaid ultimately only by specially increased tax-
ation. If such tokens are paid in for taxes in due
course of collection of the revenue, the Government
cannot afford to hoard or destroy them because
they happen to be made of paper. It has received
them as value from the taxpayer, and must pay
them out for the requirements of the State, unless
an actual surplus of income has been provided to
withdraw them. It is at best money borrowed in the
face of rising prices and repaid in the face of falling
prices. Or suppose that, by way of keeping a reserve,
the State buys property by the sale of w^hich such
tokens can be redeemed at discretion. Half-theory
may say, what better can be done than buy when
CHAP. II.
Substi-
tutes
costly in
use.
92 MONEY AND VALUE.
CHAP. II.
money is scarce and prices low, and sell it when
money has been made plentiful and prices are high \
But the very doing of the thing required reverses
the terms. How can a Government buy with money
tokens when by its own action it is (increasing the
number, and) lessening the value of its own issues,
or sell on the reverse conditions ? The attempt
to do so covertly would be " not only a crime but
a blunder," which would utterly destroy the con-
fidence of all who had to deal with it. If done at
all for the public benefit such operations must be
done openly. Bear in mind that we are not treat-
ing of borrowing and repaying according to the
necessities of the State, but of dealing solely for
the object of acting upon the quantity and value
of money. Now the very action of any one as a
buyer tends to raise prices and as a seller to depress
them, against himself, and unless there be a counter-
vailing difference in the actual value of the thing
dealt in owing to a greater or less demand for it
for actual use, the mere buying and selling again is
a waste of trouble and expense and a loss to the
dealer. These supposed dealings of the Govern-
ment do not serve any such purpose of adjusting
supply and demand, and consequently in the
natural course of events will result in a direct loss.
Moreover it has to deal largely also with property
and commodities required for the current needs of
the public service, and must use money for the
purpose like any other agent. To require it to
" regulate " the medium of exchange by means of
METALLIC MONEY AND SUBSTITUTES FOR IT.
93
which these operations are to be carried out is to
impose upon it a duplicity of functions which are
radically incompatible. Nor is the difficulty avoided
by delegating its authority to any separate body.
It will still be called upon directly or indirectly
to buy and sell freely, and also to regulate the com-
mon terms in which the agreements are expressed.
In fact, on this hypothesis the weight of the
balance wheel is to be saved, but the work has
to be done by constant interference to adjust arti-
ficially the balance of a most complex machine.
Schemes of this kind are the mere result of an over-
active ingenuity which has lost sight of, but has
not gone far enough to regain, its hold on the
primary conditions which govern the work of ad-
justment. The argument drawn from the small
cost of substitutes when their use is extended to
such objects falls to the ground : the employment
of them is at best difficult and probably costly :
probably also fluctuations will be induced quite as
serious as those which it was intended to prevent;
and these, moreover, will be liable to operate with
all the more pernicious severity from being confined
within the comparatively narrow limits of a single
country.
16. Practically the results of a resort to such
expedients is likely to be infinitely worse. If once
a Government undertakes the regulation of values,
every opposing interest has a one-sided claim to
urge. Money which in fact indicates, if not with
absolute accuracy, at least with rigid impartiality,
CHAP. II.
Liability
of optional
issues to
abuse.
94 MONEY AND VALUE.
CHAP. II.
every failure in the due adjustment of supply to
demand, is put down as the cause of the evils which
it detects. Hasty and selfish ignorance constantly
attacks the symptom instead of the disease. Debtors
suffer : the cry is for more money, that they may
the more easily pay off their debts. Prices rise,
and the poor suffer : again more money is asked
for, that wages may rise. Pensioners, and all who
have commuted present claims for prospective pay-
ment, suffer : again more money is wanted, for it
becomes constantly more difficult to reverse the
policy of applying palliatives to all pressing evils.
The country, as regards its local currency, has no
real reserve to fall back upon, and further forced
and arbitrary distributions become necessary reme-
dies for former abortive attempts to evade mere
transitory inconveniences. In fact, the true func-
tions of money are over-ridden and reversed
(I. 15), and every special interest in turn makes
good a claim against the general interests of all.
But no possible shiftings of the measure of value
can be a true remedy for misadjusted or deficient
production, while the uncertainty engendered
renders the higher work of organised industry
well-nigh impracticable.
The attempt to "regulate the currency" arti-
ficially is not only peculiarly liable to the gravest
abuses, but, even under circumstances far more
favourable than can reasonably be assumed, is of
very doubtful advantage, and this without any
imputation of intentional fraud or specially corrupt
METALLIC MONEY AND SUBSTITUTES FOR IT.
95
motives. The bitter lessons of experience will,
sooner or later, teach any capable or solvent
Government the suicidal folly of the attempt to
contravene the laws of value and to "make
money" by this summary process. One of the
strongest reasons against entering upon such a
course is the extreme difficulty of retracing the
false steps made in it. When a metallic standard
is once lost, the attempt to revert to a former
standard would often cause more injustice and
hardship than it would remedy, for the vast
majority of current agreements are made on the
existing value of the currency unit. It is a ques-
tion for compromise and arbitration : the best in-
terpretation possible must be put upon the actual
value of the current money, and that, expressed in
a weight of the precious metals, will subsequently
retain on the new scale the highest degree of
stability which it is practically possible to secure.
1 7. There is in some respects more to be appre-
hended from an increase and consequent deprecia-
tion of money than from the decrease already
referred to. The more immediate effects are very
much the reverse of those supposed in the case o1
the clothier's lengthening ell (II. 10); but, as
regards more protracted obligations, while the
appreciation of money may end in a strain severe
enough to break all contracts expressed in it, its
depreciation does not entail evils of so overt anc
palpable a character. A debtor cannot pay more
than the value of all he has, but it is always within
CHAP. II.
Rising and
falling
prices con-
trasted.
96 MONEY AND VALUE.
CHAP. II.
the limits of possibility for a creditor to do with
less. He has at least his labour free, while that
of the debtor is forestalled. Debts may be more
easily paid, the weaver's task more easily wrought ;
but as the (ostensibly) larger quantity of cloth is
required for a coat, it is the wearer of coats who
would have to beat down prices, and in this he
would be likely to succeed, because, notwithstand-
ing the delivery of the usual number of (nominal)
ells, an unsold stock would remain over on the
weaver's hands. Still the friction is against the
consumer, and, materially speaking, in favour of
the workers. Whether this is any real benefit or
not is quite a different question. A hard bargain
or an unduly hard enforcement of it is injurious,
but undue laxity may lead to still worse conse-
quences, at all events in the vast majority of com-
paratively short transactions in which mankind are
most urgently concerned. There are always many
and subtle compensations in practice for any exag-
gerated pressure in legal or customary require-
ments. The over-exacting rule not only tends to
induce caution in undertaking engagements, but a
specific margin is allowed on a vague estimate of
anticipated shortcomings which current experience
shows to be necessary, and prudence dictates an
ample performance of the work required to conform
to a standard which is felt to be rigid, and is in
fact somewhat more than rigid. The easier rule of
rising prices not only engenders confidence, but
condones rashness ; close and careful calculations
METALLIC MONEY AND SUBSTITUTES FOR IT.
are disparaged, for, somehow or other, things come
out right in the long run better than any one could
have expected. The harsher rule again applied to
those spoilt by " good fortune " of this kind puts a
strain upon them which they are ill prepared to
bear, and "no favour" is perhaps as necessary as
" a fair field " for permanent success. In a certain
material sense it may be very true in such cases
that what one man loses another gains, and thus
readjustments very readily come about ere long.
Still, so much suffering is entailed by any extreme
fluctuations, that no rational means of mitigating
their effects should be neglected, nor any rash
experiments tried at the risk of aggravating their
severity. The poorest and weakest suffer most
perhaps from changes which, in terms, are in their
favour, for those who are driven by necessity must
accept the conditions which the strong and rich,
who can wait, may require for their future security.
Sharp and sudden changes are felt by this class in
all countries as a peculiar hardship, and a sound
currency is perhaps of the most importance to those
who have the least money in their possession. But
very gradual changes can have hardly any appre-
ciable effect upon the masses of the population,
whose specific engagements are short, and, though
habitually renewed, are always liable to revision,
while the mere casual and temporary fluctuations
which arise during the process of readjustment in
the value of metallic money have hardly time to
reach them directly.
CHAP. II.
08
MONEY AND VALUE.
OHAP. II.
Fluctua-
tions of an
isolated
standard.
Still, the effect of a scale rising or falling, even
by slow and imperceptible degrees, may be recog-
nised by a certain difference in the prevailing tone
and spirit of enterprise and industry, but the mis-
chievous consequences will be slight and manage-
able if the question be rightly understood. No
harm will come of trusting to the " elasticity of the
revenue " in the one case, or to the " practicability
of economy" (which in fact implies elasticity in
another direction) in the other, provided that such
terms are not blindly used in place of an intelligent
effort to inquire fully into the reasons upon which
these confidences may be severally based.
1 8. The nature and degree of the stability of the
value of the precious metals, and the conditions
upon which it depends, must constantly be kept in
mind. There is no security whatever against the
accident of an excess or deficiency of them at any
one time or place, though there is infinitely less
likelihood of an extreme severity of pressure affect-
ing these than any other commodities (I. 21) ;
like water, they quickly find their own level with
wonderful facility. A local currency, however,
when out of direct connection with them, does not
give or take its share of the common stock ; these
casual variations are therefore more abruptly marked
in local money, and the temporary effects of such
fluctuations, as regards foreign intercourse, are
more severely felt. It has, in addition, its own
fluctuations, independently and without help from
the outside world. So the relative changes between
METALLIC MONEY AND SUBSTITUTES FOR IT. 99
the scales for internal and external trade are liable
to be unusually frequent, and may also be extreme.
It is worth while to trace how these merely
relative discrepancies are calculated to affect in-
juriously the most remote ramifications of local
industry. The work of production is sometimes
held to be completed as soon as the product receives
its final form, and is placed, ready for consumption,
in the hands of the wholesale dealer. I should say
rather that it embraces all workers, from the first
labourer in the field or mine to the last who places
the product in the hands of the consumer. I should
care little to insist upon so small a distinction, did
I not desire to show how completely the work of
distribution and adaptation permeates all produc-
tion. The category is ill-reasoned which excludes
the distributors or retailers of bread or clothes,
while it must of necessity include the cost of those
who have done precisely the same work for the
several items which have gone to make up these
finished articles. Materials crude or partly fitted
for use may be brought from all parts; tools
wanted for future work must be kept in stock. The
artisan could ill afford to leave his own special
work to do that of the distributor of the commo-
dities which he requires for his own daily support.
An item of cost must no doubt be added for each
distribution; but the object and effect of it in
every case must be held to be a better and more
economical adjustment than would otherwise be
practicable, and the wider and more unrestrained
H 2
CHAP. II.
100
MONEY AND VALUE.
CHAP. II.
Their ill
effects on
local in-
dustry.
the range of choice the greater the probability of
carrying out this work to the advantage of all
concerned. There may be useless, ill-judged,
luxurious and extravagant distribution ; the same
may be said of production ; the stringency of the
utilitarian test can be applied with just as much or
little rigour in one case as in the other. There is
nothing gained by making a distinction which
cannot be consistently observed, and which, as far
as any question of value is concerned, implies no
difference. Even accepting the definition that the
result of economic production is to be expressed as
" utilities fixed and embodied in material objects,"
it is not the less true that, though the material
form may not be changed by the act of the final
distribution, the utility at last, as at any former
period, depends upon an exactly suitable adjust-
ment in quantity to the wants of consumers.
And as this work of distribution and redistribu-
tion so permeates all production in all its stages, it
follows that, as the intercourse between countries
increases, various sections and sub-sections of pro-
duction will be facilitated by the interchange of
inchoate and incomplete utilities, if I may so call
materials partly fitted and prepared for use ; and
thus the uniformity of a common measure of value
becomes of importance even for those industries
which may appear to be of purely local interest,
especially where such industries are active, enter-
prising, and highly organised. Home and foreign
trade and industry are thus inextricably united;
METALLIC MONEY AND SUBSTITUTES FOR IT.
101
and as foreign trade will inevitably be carried on
by means of bullion as a common measure, it must
of necessity be adopted throughout to secure the
manifold advantages of preserving, in its most
plain and simple form, the same measure of value
for the whole circle of productive energy. This
may not be very evident to those who have never
given a thought to the innumerable ways in which
ingenuity has to be exercised in fitting production
to the various wants of mankind ; but it is obvious
enough to those who know how precise are the
adjustments required, and how fatal a seemingly
small obstacle or uncertainty may be to their
practical accomplishment. A good or a bad mone-
tary system may be enough in itself to turn the
scale between the national success or decay of
industrial enterprise.
19. Nevertheless it should be clearly understood
that the precious metals do not in any sense govern
the cost of production, but serve only to measure
the relative common value of the products. The
cost which will be devoted to local production
must depend upon physical and natural conditions ;
upon the proportion which the population available
for labour bears to the means of employing it^ and
the nature of the objects or "natural agents" upon
which it can be employed ; upon customs, habits,
and all other accidents which influence the decision
of the members of any one community, among
themselves, as to the way in which it suits them
best to employ themselves under their existing
CHAP. II.
Relative
cost is not
governed
by money.
102 MONEY AND VALUE.
CHAP. II.
circumstances, or, more strictly, according to the
opinion they may form upon their actual knowledge
and comprehension of them.
If any commodity is produced expressly for a
foreign market its price in gold or silver depends
upon that market, and its value, as compared with
similar commodities produced elsewhere, is esti-
mated, most readily and exactly, with reference to
that common measure by the consumer ; but whether
it is or is not worth the while of the several pro-
ducers to continue their production on the terms
offered does not depend upon the comparison so
made in a foreign market, but upon the conditions
which actually obtain in each of the producing
countries severally. A knowledge of the different
conditions under which commodities can be afforded
no doubt tends remotely to the equalization of the
total costs of their production. It may lead to
immigration or emigration, to the borrowing or
lending of capital, and the adoption of other means
by which such conditions may be really changed
and developed in various producing countries.
But the function of gold or silver as current money
is mainly that of a trustworthy measure the
application of it depends upon the intelligent dis-
crimination of the user. It shows comparative
values in one proportion in one country and in
other proportions in other countries, according to
the sum of the varying conditions and influences
under which their work is carried on. The exchange
value of the completed product is also easily
METALLIC MONEY AND SUBSTITUTES FOR IT. 103
compared by all the world according to the same
common measure, and thus the small beginnings of
international trade are more readily brought about
and the practicability of further interchanges sug-
gested ; but of the motive powers which can bring
about the changes in local conditions which make
such interchanges feasible, money, in the substan-
tive form of gold or silver, plays a very subordinate
part. It serves to indicate differences, to test, and,
perhaps, ultimately, to regulate them, but it can
do little further either to create or to remove the
causes of these differences.
20. It is needless to enlarge upon the manifold
abuses of which a reckless and corrupt issue of bad
money may be made the instrument. One weak-
ness, error, and fraud naturally leads to another;
and if it be asked, How can all laws of value be
broken and set at naught ? how can people live
at all under such conditions ? I can make no better
reply than to ask in return, How does an unpaid
army live in an enemy's or for that matter in
its own country ? There is no law of justice in
interchange observed. So far as money is used,
it is a mitigation or possibly only a prolongation
of the misery suffered. But short of these ex-
tremities it must be admitted that the issue of
debased or inconvertible tokens, or of paper-money,
is a most effective way of getting value which
could not be obtained by any ordinary means of
taxation ; and it is too much to say that even this
expedient cannot be justified by any emergency to
CHAP. II.
The
potency
of forced
issues.
104 MONEY AND VALUE.
CHAP. II.
which a State may be subjected. The operation
comes very much to this. The State pays its
creditors, including its soldiers, servants, artificers,
contractors, and others, in mere tokens which cost
them little or nothing and represent a very vague
and indefinite right to substantive repayment, but
they are declared to be a legal payment and satis-
faction for all debts incurred. The receivers have
a right to pass them as lawful money, and under
the circumstances the right to withhold any pro-
perty or commodities which the alleged exigencies
of the State require is practically over-ridden.
The loss is not directly ruinous, for the quantity
of actual money which any one need hold at any
one time is comparatively small. Every time he
passes the money it may be at a loss, but the loss
is so graduated as to be supportable, and in com-
pensation for it higher nominal prices have to be
accorded. No man can do without money, and
thus no one can evade the share of loss which
falls to him. He gets less for his money, and
money's worth is subtly drawn from those whom
no tax-gatherer could reach. The impost actually
falls on the holders successively of substantive
money during the time when its depreciation is
going on. It is the over-supply, not the low cost
of the base or paper money, which brings about the
fall in value, but it is the low cost which makes
the operation remunerative. If the whole quantity
of good money at first in circulation be taken at
1,000, and the over-issue at as much more, every
METALLIC MONEY AND SUBSTITUTES FOR IT. 105
man's specific money is worth half what it was
before, and the Government has gained the other
half. But this is all that it gains : for the rest,
higher (nominal) prices require higher (nominal)
taxation. Not that this result could ever be pre-
cisely shown, even if the value of the original
money could be ascertained. For an infinite
variety of new causes, affecting with more or less
stringency the demand for such money as can be
had, will inevitably have come into operation.
Still the proportion of excess is assuredly an
efficient cause of an equivalent depreciation, and
the State will assuredly be paid in its own coin :
though it may be impossible to assign precise
figures to this cause, or to many other of the
causes which govern the ultimate value of the
currency.
It is true moreover that some of the paper issue
may take the place of metallic money taken out of
circulation, and to this extent the new issue as
a substitute for money previously current does
not exaggerate the total supply. If the metallic
standard were restored by bringing up and can-
celling the excessive issue, this portion might still
remain in local circulation (II. 7) though made
convertible into metallic money at the option of
the holder.
Nevertheless tampering with the currency is one
of those expedients which, looking to the ultimate
cost, can hardly be called otherwise than desperate,
though it is idle to deny its immediate efficacy
CHAP. II.
106 MONEY AND VALUE.
CHAP. II,
Dislocat-
ing effects
of sudden
changes.
and that there may be emergencies so imminent
that the question of future cost sinks into com-
parative insignificance. It is enough to show that
such a policy is shortsighted and extravagant in
the last degree, and the monetary science of modern
civilization can make all the resources of a country
available for its utmost needs without resorting to
any such reckless methods.
21. Some further illustration may be given of
the way in which the terms of all contracts are
thrown into confusion by extreme changes in the
value of current money, and how the whole
machinery of productive industry is strained and
crippled by such fluctuations. Tims : a property
worth 100, charged with a debt of 80, may become
worth 200 in depreciated money ; but the debt is
payable in "lawful" money at the option of the
debtor, and is discharged at the same figure of 80.
So the owner has a balance of 120 instead of 20,
and is nominally richer by 100, and actually so by
120
40 (that is - 20), and the creditor is so much
2i
the poorer. Practically, however, in times of
national emergency and distress the sale price of
property tends naturally to fall. The direct law
and intention, however, in such agreements is that
the owner of the property retains the right to all
prospective advantages, and bears the corresponding
risk of its decline in value ; while the holder of
the debt against it has nothing to do with these
contingencies. But a rough idea of equity is
METALLIC MONEY AND SUBSTITUTES FOR IT. 107
gratified by making him take liis share in the
losses arising from widely-spread and unexpected
pressure. If the actual value of property falls as
much as the value of money has declined, the
debt, though expressed in the same figures, would
be virtually halved, and both debtor and creditor
would suffer in the same proportion. But if the
price of property, though actually lessened, had
not fallen so much as money had become depre-
ciated, the results are even more anomalous than
those first quoted. For the sake of simplicity I
will use the term gold to distinguish prices ac-
cording to the original standard and currency to
signify the depreciated money. The first value
of the property was 100 ; the debt on it 80, and
the balance, clear to the owner, 20, all in gold.
Say that it is sold at a decline of ^th, or 25
per cent., we get the price of 75 in gold, which
is equal to . . 150 in currency.
The debt, though originally
due in gold, is still pay-
able as . . 80
leaving a balance to the
owner of . 70 ,,
and this 70 in currency is equal to 35 in gold :
so that notwithstanding the fall in actual value
of 25 per cent, the owner gains 15, the margin at
the first being only 20 in gold. The creditor
not only bears the loss of 25 on the value of the
property, but also of 15 more, both estimated in
gold, which last remains in the pocket of the
CHAP. II.
108 MONEY AND VALUE.
CHAP. II.
owner. In all such cases the holders of property
of any kind would be not only relatively, but
actually, enriched by the fall in the value of money :
and this kind of confusion reigns throughout the
whole social and industrial system. The proportion
of change cited is rather high, but taking the
original figures it will be found, that money depre-
ciated 20 per cent, and property at nominal rates
only 10 per cent, higher, gives a positive gain of
5 in gold to the owner.
Money actually depreciated by 20 per cent, and
property by 25 per cent, would still throw a loss of
16 on the creditor and 9 only on the owner, both
taken in gold.
Conversely, when obligations are made in a
depreciated currency which subsequently recovers
its normal value, the claims of creditors, enhanced
in most unequal and arbitrary proportions, are
likely to absorb all or more than all the value
of their debtor's property. In both cases the
machinery of industry is thrown into dire confu-
sion and subjected to strains which it is not fitted
to withstand. And the reflex effects of such
aberrations may be even more pernicious than the
direct and more obvious consequences. In the
first case there may not only be a reasonable
desire to possess real property, rather than money
which is of doubtful value, but this desire may
very easily be recklessly exaggerated. In the
second case there will be a strong inducement,
equally liable to exaggeration, to lend money in
METALLIC MONEY AND SUBSTITUTES FOR IT. 1C9
order to secure, not merely the usual share of the CHAP. n.
gains of production, but also the increased pur-
chasing power of the money in which the principal
sum lent must be returned.
The inevitable result of such complications is
that capital, which for such purposes can hardly be
expressed otherwise than in the terms of current
money, shows alternately the extremes of timidity
or of recklessness. The tendency of all which is
that the true work of production is disparaged and
slighted, for personal profit or loss does not depend
so much upon its actual success, as upon skilful
manoeuvring to secure the advantage in the ab-
normal fluctuations in the common measure of
value.
The notice of such disorders as these is advisedly
made in connection with the forced issue of paper
money, and serves to show the great difference that
there is between the slow and gradual changes
which are consequent upon a decline in the natural
value of metallic money, and the more violent
perturbations which may be artificially caused by
sudden inflation and contraction of the currency.
22. It is beyond the scope of this treatise to Recent ex-
periences,
enter into any detailed notice of the recent financial
history of the two great countries which have so
recently suffered the heavy calamity of war upon
their own territory. I desire here to refer only to
general principles which, under varying forms, must
operate equally in all ages. The Government of United
the United States in its emergency made heavy
110 MONEY AND VALUE.
CHAP. II.
issues of paper money, and thus drew very largely
upon the actual value of their existing currency. 1
The patient determination with which this great
country has set itself to reduce its public debt has
deservedly maintained and raised its national credit.
The great staple industry of cotton-growing quickly
recovered, and extended to even larger dimensions
than before the war. No doubt has ever been felt
regarding the substantial wealth of the country or
the unabated energy and enterprise of its people.
Yet the collapse of industrial credit in 1873 was
no mere panic or failure of exceptionally reckless or
unfortunate individuals. Its effects have been of
unparalleled duration, and the disastrous results
disclosed show how complete must been the mis-
construction of the relations between property and
money values upon which that credit was raised.
Visible effects do not always follow at once upon
their radical causes, and very powerful influences
other than those to which reference has been made
have no doubt been at work to aggravate the
evils suffered. But the amount of dislocation and
failure is astounding. In the railway system alone,
in addition to the result of two previous calamitous
years, we still find in 1876 property aggregating
no less than one hundred and sixty to one hundred
and seventy millions of pounds sterling has come
or is coming under foreclosure for mortgage bond
1 The Economist gives the export of gold coin up to 1876 as
.122,000,000, of which .54,000,000 was in the seven years from
A.D. 1860 to 1865. Over 7,000,000 of silver coin were also extruded.
There has, however, been a considerable re-import.
France.
METALLIC MONEY AND SUBSTITUTES FOR IT. Ill
debts or other similar obligations, and, without CHAP. n.
any falling off in the natural resources of the
country, the depression of industry is protracted
beyond all precedent. It is not that changes in
the value of the currency could alone have caused
such widespread disaster, but the whole unstable
fabric of enterprise has been raised with the greater
facility on a basis itself shifting and untrustworthy. 1
France, on the contrary, though from motives
of precaution compelled to suspend nominally
the convertibility of its notes, has always main-
tained practically the full value and integrity of
its circulation. The fine machinery of credit was
in no way impaired or confused, and, by means
of it, not only was the enormous weight of the
national burdens borne, but value to the extent
of over two hundred million pounds sterling as in-
demnity to Germany was actually transmitted out
of the country ; yet neither then, nor since, have
any signs been shown of distress arising from
dislocation or strain of its financial system. One
1 It is true that one of the accidents of the civil war in the United
States was that it destroyed to a very great extent the production of
cotton, which was their great staple for export, and a special need thus
arose for some other article of value to supply its place in foreign
commerce. But though this is a valid reason for the export of gold
and the issue of paper to supply its place, it does not justify the
policy of so great an over-issue as to have depressed the value of the
currency dollar to an extent which, apart from speculative movements,
cannot be estimated at less than 50 to 30 per cent. The extreme rates
(quoting $100 gold in currency $) being, in July 1864, 222 to 285 ; in
December of the same year, 213 to 243 ; in May 1865, just after the end
of the war, 129 to 145 ; while as far on as 1868 prices ranged from 133 to
150 : which clearly indicates not the use of gold, but the abuse of paper.
112
MONEY AND VALUE.
CHAP. II.
Compari-
son of
values at
different
epochs-
great cause of the strength and the success of
France is no doubt the fact that the great mass
of her population could and did subscribe to the
national loans, and thus, without any disturbance
of the currency, put their property and credit
effectually at the disposal of their country. If the
wealth and the will so to use it had not been
there, no monetary contrivances would have been
of any avail. Not the less, but the more should
the lesson be taken to heart ; for it shows how
much more effective a direct appeal to the resources
of a country can be, than any financial expedients
which obscure and disguise the nature of the
obligation imposed.
23. It may sound like a paradox, but it is not
the less true, that the very fact that gold and silver
are not themselves perfectly equable and per-
manent measures of value makes it all the more
imperative to keep to them as the common mea-
sures of value. If the idea of a definite and
perfectly equable standard of value could be
realised, any community might adopt any measure
of value it chose according to its own notions of
convenience or economy, and it could be rectified
from time time by comparison with the ideal with
no greater difficulty than is now felt when dealing
with different scales of weight or measure. But
the only way of getting at any estimate of positive
value in any sense is by the double comparison
between the quantity (weight) of money, having
METALLIC MONEY AND SUBSTITUTES FOR IT. 113
CHAP. II.
a general and intrinsic value of its own, which
purchases commodities, and the quantity of com-
modities and utilities which purchase such money.
When, however, the money has only a shifting
reflex value from local commodities and conditions,
the problem becomes so utterly vague and involved
as to render any approximation to its solution
utterly hopeless. Thus if in an inquiry into
relative values in ancient times or in foreign
lands we can get at the true weight the question
of purity is resolved into weight of a standard
coin or unit of value, there is some definite clue
to go upon which is a very appreciable aid in the
investigation, but if we find only a token for inter-
change bearing a reflected value, any attempt to
base comparisons upon it is altogether vain and
delusive.
24. So now if there be any reason to apprehend
any change in the purchasing power of the precious
. . . supplies.
metals, any attempt to interfere in any way with
the free action of the " law " of demand and. supply
would be peculiarly mischievous, and serve only to
obscure the abstruse and complicated calculations
required to estimate the extent to which such
changes may have permanent effect, while only
upon such an estimate could any remedial measure
should any such ever be required be based for
a readjustment of the terms in which value should
be expressed. There is no danger of too sudden a
change in the world-wide value of the precious
metals, and the whole machinery of commercial
Appre-
hended in-
crease in
114 MONEY AND VALUE.
CHAP. If.
credit is calculated to bear much greater strains
from fluctuations in the value of property and
commodities than can ever come upon it from any
change in metallic money. The attempt to force
an undue quantity too rapidly into local circulation
(I. 23) may, indeed, produce serious perturbations
in casual value ; but a moment's reflection will
show that any direct tampering with money in
such cases could only weaken and delay the natural
action of the forces ever at work to bring about an
equilibrium. The prices of commodities will adjust
themselves to the common standard ; and even if
the pound should fall in value to 165., the only
remedy and way of preserving both the " standard "
and the " common measure " would be to recognise
the fact that 255. must be paid instead of a pound :
which is, in fact, precisely what we have to do
when corn, for example, rises from 325. to 405., or
from 405. to 505. per quarter. Neither capital nor
labour nor the natural productiveness of Nature
are touched by such changes. The vast extent of
the world- wide interests concerned in the precious
metals is the best security that no permanent
change in their value can be sudden or capricious,
but any attempt to transcend, artificially, the high
degree of stability which this wide average affords
would surely be most ill-advised and presumptuous.
For the rest, if cases of undue hardship or injustice
can be proved, it will be within the power of
special legislation to provide a remedy.
METALLIC MONEY AND SUBSTITUTES FOR IT.
115
25. Hitherto I have referred to the precious
metals as costly, but have treated only of the
nature of their uses and of the demand which has
consequently grown up for them. It has still to be
seen what security there is for their continued cost-
liness and clue scarcity. The value of all commo-
dities no doubt tends ultimately to be measured by
the necessary costs of production under the most
unfavourable circumstances to which the neces-
sities of consumers compel a resort. The difference
between that and all lower rates of cost does not
decrease the "value in exchange," but constitutes
a " rent " for the clear profit of the owner. The
rational application of this theorem is commonly
sufficiently apparent, but is perhaps not so obvious
in the case of the precious metals. Gold especially
is transmitted to us with undiminished lustre from
every age and from every clime. It comes indis-
criminately from the earliest civilisations of Central
Asia, from India and China, from well-nigh for-
gotten nations who have left but a dim tradition of
their wealth, from regions where the early Scythians
may have gleaned and the Russian princes of the
house of Demidorf now work their mines ; from
Egypt of the Pharaohs and the Ptolemies ; from all
lands and peoples known in classic history. The
rude ornaments of the aboriginal tribes of Africa
of unknown antiquity which excited their wonder
still come to us, mixed with recent washings from
golden sands owning European lordship, and, it
may be, with the doubloons coined by Spaniards
i 2
CHAP. II.
"Supply"
as affect-
ing value.
116 MONEY AND VALUE.
CHAP. II.
from Montezuma's gold, taken by his ancestors
from the Toltecs whom they displaced, and by
them from yet earlier inhabitants whose traces are
a wonder and a mystery to the new world. Europe
ever has been, and still is, a contributor, and not
long since the too scanty yield from the river Ullie
deluded the fond hopes of the people of Sutherland-
shire. The few grains of the luckless digger in
Australia are melted down with the big nuggets
and the yield of the last " bonanza " in Nevada,
paying fabulous profits to its owners. In one sense
gold is the cheapest of all products. Its perfect
durability is wonderful. It is used and reused, and
suffers no waste except from actual mechanical
attrition, and its cost may be distributed over a
hundred generations. Silver, also, though less
durable than gold, has come down to us through
many cycles of years and from all parts of the
world ; the memory of those who have raised it has
long since passed away, and the fruits of their toil
are for the most part lost in the ever-recurring
round of growth and use and decay.
But though it is evident that the attempt to
estimate the cost of bygone production must be
altogether futile, and the yield of any one, or of
many years, can bear but a small proportion to the
accumulated stores diffused throughout the world,
the working of all existing mines depends upon the
law common to all commodities, and the necessary
expenses of those carried on at a minimum of profit
are as good a measure as can be applied to the
METALLIC MONEY AND SUBSTITUTES FOR IT.
117
stability of their " value in exchange." The greater
or less supply of any one mine can have little effect
on the general range of prices, and if these are not
remunerative under existing conditions, the in-
ference is plain that the wants of the world will
not afford the cost and labour required for this
additional supply.
26. From time to time the world is startled by
accounts of vast discoveries of metallic wealth, and
it is by no means beyond the limits of probability
that excessive supply may cause some change both
in the general and in the relative value of the
precious metals. Each of them is found in different
districts and in different parts of the world sepa-
rately, or with such small traces only of the other
as to be of no monetary importance, but they are
also found associated together, and the great feature
in some of the recent discoveries in the Western
States of America, which lately attracted so much
attention, is the immense mass of ore yielding
apparently about 40 oz. of silver, which silver con-
tains about H to 2 oz. of gold, to the ton. The
shafts and levels are sunk to a depth of about
1,700 feet, and the deeper workings are said to
be richer especially in gold. Great expenses have
no doubt been incurred, but these do not tell very
heavily on cost when the aggregate yield is very
large, and the report of Dr. H. E. Linderman, of
the United States Mint, in 1875, estimated the
mass of ore to be worth 30,000,000^. to 60,000,000^.
sterling. But similar events are no new feature in
CHAP. II.
Augment-
ed supplies
118
MONEY AND VALUE.
CHAP. ir.
Natural
mitiga-
tions of
their
effects.
the history of mining, and his remarks on mining
generally, in the face of this great " bonanza," are
worth quoting in this context. " Notwithstanding
the improvements which have been made in mining
and in the reduction of ores, the business is one
of uncertainty and hazard, and taking one year
with another the expenses equal if they do not
exceed the production " "the first capital which
follows these (the first) prospectors is generally
sunk, and but a small proportion of mines are
continuously worked and many totally abandoned
after considerable expenditure has been made/'
It must again be borne in mind that the yield
of any one year or cycle of years can bear but
a small proportion to the accumulated stores of
all the world, and the ability ultimately to absorb
and adjust the value of new supplies of the precious
metals is a totally different question from that of
the circumstances which may arise from time to
time to retard or to facilitate the introduction of
unusually large quantities of bullion into other
countries for value to be received by some course
or other from them. It is easy to se]l the metal
in many places, but value in a suitable form for
returns as payment for it cannot so readily be
found. There will thus be a check to over-rapid
supply from the direct difficulty of getting the
increase into circulation, and though a pressure
on the part of the producing countries may cause
frequent local perturbations, the effect of these will
have to be very widely dispersed before any great
METALLIC MONEY AND SUBSTITUTES FOR IT.
fall in general value can be established, and the
notion that either of these metals can be displaced
by a mere vulgar panic from the position they hold
by the custom and tradition of ages is altogether
extravagant : the more so as the fact which is
palpable to popular apprehension is not that
the money is falling, but that prices are rising
continuously.
27. As regards gold especially, the nature of the
operations required under ordinary conditions to
procure it is particularly simple ; and methods are
still used with success which must have been
practised in the very earliest ages. It is found
comparatively pure : it resists the action of almost
all substances and does not enter into chemical
combination with them. Its high specific gravity
renders it easy to distinguish and to separate it
by comparatively rude mechanical contrivances, so
that present experiences may be taken as throwing
some adequate light upon the past. The splendid
nature of the prizes occasionally secured with little
toil, and the glamour which surrounds the subject,
have ever made the search exceptionally and in-
ordinately attractive, but the broad teaching of
experience proves that it is too often in the long
run a very sorry quest. The larger part of the
yield of gold is still found in alluvial drift, and
where nature has been at work for ages upon the
exposed rocks in which it is contained, very rich
accretions will naturally be found in the first
instance among the debris washed down. Thus
119
CHAP. II.
The pro-
duction of
gold.
120 MONEY AND VALUE.
CHAP. II.
some of the earlier diggings in Australia gave at
first as much as 1^ to 3f oz. of metal to the ton
of earth washed, but this average was on a com-
paratively small scale ; and after the first gleanings
have been secured, 10 dwts. (-^ an ounce) per ton
seems a very full estimate of the average produc-
tion permanently afforded on any large scale. 1 Nor
do more modern methods of mining affect this
general conclusion. Organised labour and better
appliances requiring a largely increased outlay of
capital overcome greater difficulties, and thus only
make good their competition with ruder kinds of
labour under easier conditions. There is a marked
imilarity in the manner in which gold has been
deposited and worked in all quarters of the globe,
and indications from the old world and the new
1 See the elaborate returns annually published by the Government
of Victoria. These, of course, prove nothing as to the cost or condi-
tions of production in other quarters, but there seems no reason to
doubt the commonly received opinion that gold mining in Australia
s carried on under comparatively favourable circumstances as regards
he quantity yielded, while many other occupations are open to labour
vhich keep up the rate of wages to a relatively high level.
The following particulars from the Report published last year are
;uggestive. Dividing value of gold exported and received at the
Mint among mean numbers of miners employed we have :
AVERAGE EARNINGS PER MAN PER ANNUM.
Alluvial mining. Quartz mining. General average.
1871 ... 65 17 11 ... 164 10 4 ... 93 6 '
1872 ... 65 6| ... 159 6 ... 9317 I**'
1873 ... 59 15 9^ ... 164 15 9| ... 93 16 2 '62
1874 ... 58 9 2J ... 183 09 ... 99 8 3 <*
1875 ... 63 5 5 ... 182 17 8 ... 104 4 4 -02
These averages include, especially in the case of quartz mining, the
roportion required to recompense previous outlay on works of a
>ermanent character, and to replace the cost of expensive machinery.
METALLIC MONEY AND SUBSTITUTES FOR IT. 121
point to similar results. A large proportion of
our supply, some of it procured with the aid of
very costly machinery, is yielded at or under the
rate of \ oz. (10 dwts.) per ton of material crushed
or washed. Work by the Chinese is certainly often
done at less than half that rate. Now these figures
give a proportion of 1 part to 65,000 up to 130,000
or over in weight, and in bulk brings us up to
millionth parts which have to be recovered, and
this is taking into account only the drift actually
raised and washed, or quartz rock crushed, without
allowing for shafts sunk or earth removed for
preliminary operations. If one were to file down
a sovereign into 10 or 12 barrowloads of earth and
mix them well up together, the task of recovering
the metal would be by no means an unfavourable
specimen of the easiest kind of gold-finding.
Although it is not possible on any such data as
these to frame a precise estimate of the purchasing
power of gold, yet it is evident that a substance
yielded only in such very small quantities to so
much labour cannot be otherwise than costly.
Labour no doubt is of unequal efficiency, but it
is very fairly established as a general truth, that
however much wages may vary the real cost of
manual labour does not very widely differ in any
part of the world. Any serious reduction in ex-
change value cannot fail materially to curtail the
sources of supply, while a slight advance will
ensure increased production, under these conditions.
A reference to the records of modern gold mining
CHAP. IT.
122
MONEY AND VALUE.
CHAP. II.
The pro-
duction of
silver.
strongly confirms these deductions. The first yield
of new diggings is large but gradually decreases
as the accidentally rich accumulations of debris are
worked out, but the deep quartz mining is carried
far down without a falling off from the moderate
scale of return here indicated.
28. The supply of silver does not rest upon
the same conditions. There are serious practical
difficulties in the way of getting at it by merely
mechanical means, and though from a scientific
point of view as much may have been done by
modern discovery for one metal as for the other,
it by no means follows that the relative effect on
their economic value will be similar. The gross
value of the yield appears to be much larger. 1
Thus an average is given of the most important
Spanish mines near Guadalagara of 4^ oz. per
quintal or 90 oz. per ton of ore. The average
richness of ores treated in Mexico is given at 2^
to 3 oz. per quintal or 50 oz. per ton, and an
average assay from Guanaxuato shows 49 to 65 oz.
per ton, while a yield of 29 oz. was not, in 1843>
thought worth working in that place. The suc-
cessive reductions in the royalty paid to Spain
during the last century, which was decreased
1 I take these figures chiefly from the work of Mr. J. A. Phillips on
Mining and Metallurgy (Spon), and purposely avoid any assumption
of exactitude in the text. There are no data on which to warrant
any conclusions of the kind, but the figures cited afford tests which
may fairly be relied upon for general conclusions.
The extensive collection and generalisation of the facts bearing upon
this important question is well worthy of the consideration of the
Government.
METALLIC MONEY AND SUBSTITUTES FOR IT. 123
from 50 down to 5 per cent, on the value of the
produce, confirm the general reports that mining
was not then a profitable undertaking ; but if,
as seems highly probable, some such gross products
are the rule, it is clear enough that there is a very
large margin upon which more modern skill and
machinery can be brought to bear. It is a metal
too which enters into a very great variety of
natural combinations ; it is found under very
widely different geological conditions, and in very
many different parts of the globe, though the
command of the supply has been practically with
the new world since its discovery. It is commonly
found with gold, yet not, it must be remarked,
combined according to laws of atomic proportion,
but commingled with it, as alloy, in very various
quantities.
Nevertheless, though the exchange value of
silver does not seem to rest so closely upon the
necessary cost of production as that of gold, it is
yet relatively very high as compared with all the
baser metals, and none of them can come into com-
petition with it as a medium of exchange or com-
mon measure of value. Eoughly speaking a com-
parison in avoirdupois weight would give as equiva-
lents : 1 oz. gold, 1 Ib. silver, 1 cwt. copper or tin,
3 \ to 4 cwt. of lead or zinc, and 1 ton of rough
iron. The mere dust and waste of our iron would
counterbalance all our gold. Its price in silver
would hardly turn the scales in which it is weighed.
There is a large difference between the relative
CHAP. II.
124
MONEY AND VALUE.
CHAP. II.
The yield
in the
mine will
govern
their rela-
tive value.
Gold and
silver have
no fixed
ratio of
value.
values of gold and silver, yet there is so much
larger a gap between the latter and copper or tin,
that the two precious metals stand altogether apart
for all practical considerations.
29. New conditions may no doubt arise as por-
tions of the world's surface now little known are
opened out and occupied. The cost of conveying
any commodity to a market enters into its exchange
value just as imperatively as the cost of material
production, though in the case of substances so
portable as the precious metals the corollary of the
proposition is applicable with far greater weight,
and it is the diminished cost of transmission of the
supplies necessary to support the labourers em-
ployed in mines which tends in a much greater
degree to lessen the necessary outlay. All these
circumstances must be well considered as accidents
bearing upon the question of current production of
both metals alike ; but the relative * richness of the
auriferous and argentiferous mines respectively,
which will have to be worked to supply the world's
demand, is fundamentally the factor which, duly
corrected for the cost of extracting them from the
rough material in which they may be contained,
must govern ultimately the relative value of the
precious metals.
30. Both gold and silver, as has just been ob-
served, stand distinctly apart, and, as far as my
argument has hitherto been carried, have been
treated together, as severally and independently
capable of satisfying the special conditions of utility
METALLIC MONEY AND SUBSTITUTES FOR IT. 125
which pre-eminently constitute money. This much
they have in common. But neither on historic,
nor geological, nor economic, nor any other grounds
is there any reason to suppose that they are or can
be related in any definite proportion of value the
one to the other. Gold is indeed rather suited for
current circulation in the richer, and silver in the
poorer countries, though by no civilised nation is
the one metal only used exclusively for external
commercial interchanges. The one may to a cer-
tain extent be substituted for the other for the
purposes common to both, just as copper might be
used more largely than usual in proportion to tin,
or the reverse, according as either of them might
be deemed relatively cheap. All articles are in this
way affected by others which thus come into com-
petition with them, but not the less is the value of
each one of them specially determined. Previous
to the discovery of the new world however, the
proportionate value appears to have very generally
ranged at about 10 to 12 parts silver to 1 gold. A
mere comparison of ancient coins often leads to
very uncertain and contradictory conclusions, but
it seems clear enough that in the time of Alexander
the Great, the ratio of silver to gold was as 10 to 1,
and three centuries later in the age of Augustus, as
about 12 or 12i to 1, and these figures may fairly
be taken to indicate the proximate proportions in
other civilised countries including those only in-
directly connected with the great powers of the
Mediterranean, which indeed were not pre-eminent
CHAP. If.
126 MONEY AND VALUE.
CHAP. IT.
for mere wealth as measured in money. For if
intercourse be not entirely cut off, very small differ-
ences in the relative value of the two metals used
as money form a most efficient inducement con-
stantly at work, to bring about for each severally
the true equation of its general value. That which
is relatively cheaper will always be preferred for
transmission to any place where it is relatively
dearer, and the smallest fraction of difference will
determine the choice of the sender whenever the
necessities of commerce require that metallic money
should be sent in either direction ; or if the differ-
ence be sufficiently large the metals respectively
will be brought and sent for the special purpose of
exchange the one against the other. The differ-
ence in relative value in countries however in-
directly connected with each other tends strongly
to be equalised, but no such process tends to in-
crease or lessen any difference which may arise in
the general appreciation of the one rather than the
other. These interchanges only work out more
surely and inevitably the respective values of the
two metals according to the conditions of demand
and supply which may affect them severally.
These streams run constantly if only the gradient
be sufficient, and very small gradients which can
be so readily and precisely estimated will cause the
flow of innumerable little rills which will tell very
perceptibly in the long run. Kings and potentates
may make war, but it does not follow that their
subjects will forego their natural pursuits, and only
METALLIC MONEY AND SUBSTITUTES FOR IT. 127
when war and anarchy desolate a land does such
commerce cease.
The same causes must ever have been as much
at work between Carthage and Tyre and Babylon,
or between Byzantium and Bagdad, as between
London and Calcutta or Canton. The vast increase
in the facilities of transit and in the extent of
traffic expedite the adjustment of greater values,
but do not change the principles involved.
The range of intercourse between different nations
was unusually extended about the two epochs just
referred to. Subsequently at Byzantium gold
appears to have been as high as 1 to 14 or 15
parts of silver ; but it was a more troublous world
in those days. Our own gold coinage began when
the ratio was about 1 to 12| in the fourteenth
century ; it appears at one time to have been
under lOi in the fifteenth, and about 1 to llj in
the sixteenth ; * but these fluctuations to some
extent at all events were most probably rather
local than general. After this period, the effect of
the South American discoveries began to be felt,
and the ratio steadily rose to about 1 to 14J in the
seventeenth century, and to a very little over 15
in the eighteenth ; Sir Isaac Newton's valuation of
1 to 15*21 proving too low by about 1J per cent.
Adam Smith gives the ratio of 1 to 12 as subsisting
even in his own time in China, and considering not
only the isolation but the vast wealth and extent
i Taken from J. R. MacCulloch's article on Money in the Encyclo-
pedia Brit.annica.
CHAP. II.
128
MONEY AND VALUE.
CHAP. II.
Special
and "in-
trinsic "
value.
of that empire, it is easy to believe that the read-
justment there came about tardily. It is moreover
known to be itself a producing country. Japan
entirely isolated for two centuries worked out ex-
ceptional ratios altogether, but, on the reopening
of that country to the world, the differences were at
once merged in the general average without any
appreciable effect upon it. During the latter half
of this century the further discoveries of gold and
more recently of silver, and silver and gold
together, have worked further changes, and the
present (1877) proportion of gold to silver is very
unstable at about 1 to 17J. It is at present prema-
ture to draw any general conclusions from recent
occurrences, but the subject will be further discussed
hereafter.
Meantime it is sufficient to add, that every
argument urged against the attempt to assign an
artificial value to the precious metals together, tells
with equal force against any attempt so to fix a
value on either of them, or by consequence, the
ratio of value as between the two. Calculations of
relative value expressed in the terms of one can
easily be translated into the terms of the other,
and the price of either one as measured in the
other, shows exactly the extent of their divergence
or convergence within any given period, which can
thus readily be ascertained, though it cannot be
controlled.
31. For the nicer adjustments of currency the
distinction must be carefully kept in mind between
METALLIC MONEY AND SUBSTITUTES FOR IT. 129
the cost properly required for production, and the
charges subsequently incurred incidentally for the
use of the precious metals as money. It is per-
fectly true that the cost of the last labour required
to transport the metal to any place, is just as much
a part of its cost in that place, as that of the first
employed in the mine. So also the labour used for
making a coin enters into its cost just as much as
any labour previously expended upon the metal,
and just the same may be said of plate or jewels or
any other work of art. The difference is that while
these serve only local or special, or perhaps both
local and special, uses, the bullion of which they
are made serves a far wider and more general
range of uses, and so is, as it were, a certain datum
line above which casual value may go and to which
it can again return. "When the intrinsic value of a
coin or of plate is spoken of, it is in reference to
this highly generalised and equable value, and the
term is significant as founded on the fact that
while in most cases materials deteriorate much in
use, silver with very little, and gold with no
appreciable, loss, can be melted down whenever
they may be required to serve their primary and
most general uses.
Now although there is no change made in the
outward form, there is much the same change in
the value of metallic money taken from one place
to another to serve as a purchasing power specially
applied. It is used only as a means to an end,
and the attainment of that end adds nothing to
CHAP. II.
130 MONEY AND VALUE.
CHAP. II.
its permanent value. In the ordinary fluctuations
of interchange, the gold which now goes from west
to east may come from east to west at some future
time, and by these means only the general average
equation of value is approached. The way in
which different relative quantities of metallic
money and of commodities act and react upon
prices has already been explained, but a certain
cost or friction attends these operations which
must be borne as part of the charges incidental to
the course of each and every completed operation
of interchange. Thus : if A buy any commodity
of B and send treasure to pay for it, he does so
only in expectation that that which is bought will
repay not only the cost of its own transit from
B to A, but also that of the money which has been
sent from A to B only because it is the least costly
way of conveying purchasing power to a distance
in the substantive form required. Undoubtedly
the money when it reached B was more costly by
the amount of charges incurred upon it than when
it left A, but the special act of utility for which it
was designed being accomplished, this accidental
element of value is lost, and when, in the course
of events, treasure has to be sent in the reverse
direction from B to A or indeed in any other
direction the mere weight of metal is the only
point regarded. Assuming the costs of transit to be
2 per cent, at a time when a speculative financier
were regulating the currency, he might assume
weights in the proportion of 102 to 100 to be
METALLIC MONEY AND SUBSTITUTES FOR IT. 131
equivalents, and even take great pains to find out
the exact amount of difference at the time. But
this 2 per cent, is really plus or minus, as casual
exigencies may require an influx or efflux of
bullion.
In the same way we might perhaps very truly
say that a yard of cloth in England was worth
33 inches of cloth in China. If we were to make
33 inches there equal to a yard, putting the costs
of transit out of sight, the yard in both places might
be sold at the same price. But this simplicity is
merely fictitious and ends in exaggerated confusion,
for when Chinese cloth has to be sent to England,
taking costs in the same proportion, the 33 inches
has to be raised not to 36 but to 35f inches.
This is a further reason for keeping as closely as
possible to the simple notion of a definite weight of
metal as the unit of value. Dealers in bullion have
always had to do this, and any authoritative de-
claration that different fixed weights are the same
value, is simply reversed by arithmetical calcula-
tion, and casual charges on one side or the other
are taken into account according to the varying
facts of every actual transaction.
The value of all metallic money as measured by
all commodities fluctuates only according to the
ultimate conditions of the widest range of average.
Local variations are continuously in progress in
numerous and irregular smaller divisions not
determined merely by proximity, but according to
the changing exigencies of commerce. A certain
K 2
CHAP. II.
132 MONEY AND VALUE.
CHAP. ii. amount of friction constantly obstructs all move-
ment, and this item must by no means be ignored.
Local differences in value supply the motive power
by which this friction is overcome and the work of
adjustment carried on. Any attempt by misguided
authority to thwart or disguise these differences,
or to try to indicate equivalent values by different
weights of the same metal, is futile, not only
because it assumes a degree of stability which does
not exist in fact, but because also it opposes the
very work of adjustment which it is the special
function of money to bring about. And the same
reasoning applies as against any attempt to affix
different relative proportions to the two precious
metals in different countries. The permanent and
more casual elements of value must by no means
be confounded.
The theorem of the general equation of demand
and of supply as affecting the precious metals having
been stated as a problem in pure mechanics, it
is well before leaving this branch of the subject,
to bring thus prominently forward the practical
truth that there is a certain amount of friction
which has to be overcome in all the processes of
adjustment of comparative value carried on by
their aid. They are not ideally perfect measures
of value, though for very many purposes they are
by far the best which can be devised, or rather
they are far better than any which could have been
devised by the conscious efforts of human skill.
Every departure from simplicity not only mars
Friction.
METALLIC MONEY AND SUBSTITUTES FOR IT. 133
their present utility, but renders it more difficult
to estimate and to deal with any imperfection they
may show as permanent standards and common
measures of value.
CHAP. II.
! Summary
of fore-
going
32. The conclusions drawn in these two chapters
may be thus summarised :
Chapters.
(1). During time immemorial the precious metal*
have grown into use as a generally diffused and
most widely recognised purchasing power, which
is thus vested in imperishable substances, the
quantities of which cannot be increased except
to a limited extent and at a high rate of cost.
(2). Their primary use as money is to aid in
that redistribution of commodities rendered needful
by the inequality and uncertainty of natural pro-
duction : a higher degree of security for the due
continuity of supply is thus worked out according
to a general law of average.
(3). The quantity of commodities which can be
so distributed is the surplus as against the defective
production of different regions.
(4). The natural traffic that springs up between
different nations is for the most part virtually
barter,, or the interchange of commodities directly
required for use or enjoyment. Metallic money
therefore can be employed primarily only for the
purchase of the excess for which suitable com-
modities cannot be offered in exchange.
(5). The total value of money that can be
134 MONEY AND VALUE.
CHAP. II.
employed cannot exceed the total (surplus) value
of commodities thus available for exchange with it.
An increased quantity offered can only be disposed
of on the terms of a decrease in the value : or
conversely by an increase in the weight of every
supposed unit of the aggregate weight of metal :
or, more familiarly speaking, by a general rise in
money prices.
(6). Metallic money is a purchasing power held
constantly in reserve. It does not itself yield any
increase, nor does it waste by keeping ; there is
therefore a constant, but not an excessive, induce-
ment for the successive holders of it to spend or
turn it to the uses for which it is fitted, as op-
portunities may arise. But as a reserve it ever
remains in one hand or another.
(7). The monetary unit of value must be con-
ceived of as a specific weight of metal : different
units in different countries are rectified by simple
arithmetical calculation : alloy in the precious
metals has ever been rejected as of no value :
pure metal only is virtually taken into the equa-
tion : they can be approximately tested by simple
methods : divided or massed as occasion may
require, and moved from place to place at a very
small expense.
(8). Metallic money thus comes also to be
generally referred to as a common measure of
comparative value in widely separated regions,
and is used inferentially without changing hands
METALLIC MONEY AND SUBSTITUTES FOR IT. 135
in substance. It thus greatly facilitates, without
cost, the calculations required to estimate the
differences in the relative value of commodities,
which it is the object of commerce to adjust.
(9). As subdivisions of labour become more
specialised and complicated, money is more ex-
tensively required. The use of a general purchasing
power gives each worker an effective means of
choice as to the way in which he will receive his
equivalent remuneration in the completed products
of other workers.
(10). This buying and selling, hoVever, repre-
sents for the most part the current interchange
of consumable commodities within the ordinary
range of production. The only use of money in
this case is to serve as a common measure and
medium of exchange for immediate use ; the units
of it are used over and over again within short
periods, and thus the whole (say) annual produc-
tion will be measured by a comparatively very
small value of money in actual circulation.
(11). Still a certain limited amount will con-
stantly remain in circulation applied to this
purpose only and not required for any other.
To this extent mere tallies, as far as they are
currently received, may serve all the purposes of
money.
(12). The value of the total money in circulation
must conform to the total amount required directly
or indirectly to carry on the current transactions
needed to satisfy the wants of any community :
CHAP. II.
136 MONEY AND VALUE.
CHAP. II.
the greater or less number of units into which
this total is divided must correspond with a less
or greater value of each unit.
(13). The value of a metallic unit is in
correspondence with the value which obtains
throughout the world at large, and which is
sustained by the scarcity and high cost of pro-
duction of the precious metals. Metallic units
unduly depreciated locally by reason of excess
will therefore flow out; or, if unduly appreciated
from local scarcity, an inflow will make good the
deficiency.
(14). Tallies or local substitutes for money
which can be exchanged at will into the metallic
equivalents which they represent, and which con-
sequently circulate side by side with them, are
so far guarded from any great fluctuation, because
any part of the excessive aggregate which is
composed of metallic money will still flow in or
out, thus adjusting the balance required for local
use. The value of the unit being thus fixed the
number of the units is adequately restricted.
15. But such tallies having only a local value
can never go out of local circulation, but will there
fill the place of metallic money.
As there is no natural limit to the issue of
inconvertible substitutes of no intrinsic value, so
there is no limit to the extent to which they may
become depreciated.
(16). Tallies or substitutes issued in excess,
become depreciated in proportion to such excess,
METALLIC MONEY AND SUBSTITUTES FOR IT.
137
but subject to that proportionate reduction are
vested with an actual purchasing power and
(though of no intrinsic value) cannot be withdrawn
from circulation, without rateable compensation to
the holder.
(17). Metallic money will always be required
for external trade, and will be (apparently) of a
variable value, as measured in a purely local
currency. Such variations in the measures of
value applied to external and local commerce
respectively, are a serious hindrance to the accu-
rate adjustment of supply and demand, especially
where labour is highly subdivided and organised.
(18). The general equation of the value of the
precious metals, and of commodities, is brought
about by the constant transfers by which local
excess is distributed and local deficiency supplied.
(19). Differences thus constantly arise in the
local value of the precious metals, within the limits
of the cost of transit from one place to another,
but subject to these changes, the value in every
place tends always to the mean value worked out
according to the general law of average.
(20). The value of the precious metals them-
selves also tends towards a general mean equating
the total average supply to the total average
demand according to the general conditions affect-
ing such demand and supply throughout all the
world open to commercial intercourse.
(21). No greater stability can be secured arti-
CHAP. II.
138 MONEY AND VALUE.
CHAP. II.
ficially than this world-wide average is calculated
to insure.
(22). Gold and silver stand apart from all other
metals by a very wide difference in value, and are
severally or jointly available as money.
(23). But these two metals stand in no definite
ratio of value the one towards the other. They are
produced generally under different conditions, are
each more specially suited for different purposes
and conditions of society, and have in fact varied
considerably in relative value during historic times
and especially since the discovery of the New
World.
(24). The gross amount of production in gold-
mines seems to be disproportionably lower in
value than that in silver mines. Should this be
established as a general fact, it follows that its
present cost is nearer to the minimum cost at
which production can be carried on, and therefore
that gold is for all future considerations unques-
tionably the more trustworthy standard of value.
It will further be seen hereafter that the quantity
of tangible money, and d fortiori of metallic
money, tends to become reduced to the minimum.
In some of the intermediate states of society the
quantity of the precious metals used as money is
disproportionably and needlessly increased ; but
as industry becomes more highly organised it is
used rather inferentially, and in its specific form
METALLIC MONEY AND SUBSTITUTES FOR IT.
is required only for those uses which I have termed CHAP. n.
primary.
33. This theorem regarding money and the Limits
precious metals is put forward simply as an exposi- j theorem,
tion of the working of motives common to humanity I
in all ages. The adaptability of such money toj
certain ends has ever been obvious, in the most
literal sense, to some active sections of society, and
its use has been accepted generally as the result of
the experience of many generations. But the so-
called " laws " of value, or of money, are nothing
more than this. Like other economic " laws " they
have a claim to be accepted as true only so far as
they throw adequate light upon the reasons why
certain correlations of cause and effect have very
widely obtained. It is a mere confusion of sense
(perhaps accounted for but not excused by the un-
fortunate similarity of terms), to argue as though
any direct penalty would or should follow the
breach of them, as in the case of legislative enact-
ments. Still more so, to treat them as the con-
noted relation of antecedent and consequent which
is termed " natural law," wherein to prove an ex-
ception in any one case is to disprove the validity of
the law itself. If the term is used at all in such
economic questions as the present, it must be in a
very different sense, not indeed less true, but less
exclusive. In quoting the " law " of demand and
supply for instance, I do but recognise the fact on
the one hand that numerous things may excite in
140 MONEY AND VALUE.
CHAP. II.
men a desire to possess them, and that no one can
say how much or how little any one may be disposed
to sacrifice in order to gratify his desire. But on
the other hand there is an equally prevalent desire
to gratify such wants at the least possible sacrifice,
or, what a very limited amount of reflection will
show to be very much the same thing, to gratify
as many of them as possible. As far as these
natural and perfectly legitimate influences operate
on both sides, they tend to bring about the inter-
change of all commodities for which there is an
effective demand at all, for equal sacrifices of
energy. But I commit myself to no theory what-
ever as- to what men will or will not, should or
should not desire, nor as to what sacrifices they
may or may not be able or willing to make. The
'' law " is an assertion of certain tendencies, not an
assumption of the result to which they tend, and is
no more disproved by any number of cases of in-
equality than the universal natural law that water
will find its own level is controverted by the exist-
ence of a wet hill-side or of a lake at the top of a
mountain. So with money. No one is obliged to
use it, except indeed in so far as any individual is
practically obliged to conform to the usages of
the society of which he is a member ; but where
neither ignorance nor artificial limits have restricted
its employment, its effects may not inaptly be com-
pared to those of fluid pressure for subtlety and
power. Further, if men, great or small, choose to
hoard untold amounts of treasure, there is nothing
METALLIC MONEY AND SUBSTITUTES FOR IT. 141
to prevent their doing so ; only the reasons stated
for the opposite course have ever been found strong
enough to make this the rare exception and not the
rule of action.
Regarding money as essentially conveying a
power of free choice, its use is evidently in some
degree anomalous in a state of society based on the
principle that the great mass of the people had no
right to exercise any volition at all. The lord,
receiving the whole surplus of all production, or,
indeed, considering that even the labourers lived
on the fruit of his bounty, though perhaps liberal
in the disposal of a superfluity which cost him
nothing, was not likely to form an estimate of
value which would satisfy any independent test,
though by no means slow to take money when he
could get it on his own terms. And this is the
root of the strife between privilege and gold. To
compare a great productive natural agent like land
with mere money is out of all reason. It is the
system of exclusive rights of ownership, as against
the rights of free interchange, which were, and, in
some degree still are, in conflict, and the results oJ
the one cannot fairly be measured in the terms oi
the other. The defect common to both is that
neither have ever been able to include all who had
wants to be satisfied within their systems. But the
pauper or the man out of work is certainly not
worse off than the lordless serf with neither rights
nor claims against any one, while the free workman
will hardly change places with the serf well or ill
CHAP. II.
Status.
142
MONEY AND VALUE.
CHAP. II.
Commer-
cial mono-
poly.
Commer-
cial wars.
cared for at the will of another. Adam Smith
showed us a century ago how the old order passed
away, leaving, however, some anomalous traces,
especially in matters of opinion. But the system
which is dead here, is in more or less force in other
countries and modifies the power and uses of money
accordingly.
Commerce also, so far as it has been a monopoly,
has not indeed refrained from the employment of
so powerful an agent as money, but has constantly
striven to ^restrain its full use ; and the fallacies of
the mercantile systems which so long afflicted
industry are closely connected with the attempts
of exclusive commercial guilds to thwart and
obstruct the rational circulation of the precious
metals. Gold meant freedom of choice, therefore
it was to be kept jealously under their own con-
trol, or at least within the limits of their own
nation. They had no adequate idea of the laws
which underlie freedom and no trust in it ; no
perception that the actual uses and conditions of
trade were to distribute and equalise, not only the
value but the utility of the products of the earth
and of labour ; and no knowledge of the truth that
all natural instincts and interests tend to bring
gold enough to those who could do this service as
surely as the shadow will follow the substance.
They lost the substance of value by grasping at the
shadow.
Commercial wars also followed, but these were
rather for the restriction than for the extension of
METALLIC MONEY AND SUBSTITUTES FOR IT. 143
trade. It is true that as between open plunder
and exclusion, and the qualified sufferance secured
by treaty, there is some advantage gained in favour
of the latter, but as long as exclusive rights were
ordained by special law, so long would money, in
obedience to the broader natural law, tend to
escape restrictions and work out results widely
different from those which " ought " to have fol-
lowed according to the theory promulgated. But
it is altogether an error to suppose that trade can
be forced upon an unwilling people by war. It is
a contradiction of terms to say any one is forced
to buy or sell. It would be infinitely simpler for
all parties to steal the profit at once. The so-called
commercial wars in which this country has been
recently engaged have been to restrain the injurious
interference of hostile governments with the free
intercourse into which the mass of the people were
only too ready to enter. To take as an extreme
case the wars connected with the opium trade in
China. The charge popularly made is that the
East India Company "forced" the use of the
drug upon an unwilling people. It is difficult to
realise any process by which this could possibly
have been done ; but as a matter of fact, from the
very first, the one thing for which the Chinese
would under any difficulties manage to bring their
silver, was opium. Demand from their side could
not have been more urgent or more effective. It is
not the place here to enter into the question whether
this country ought or ought not to have aided the
CHAP. II.
144 MONEY AND VALUE.
CHAP. II.
Government of China in enforcing the sumptuary
laws which, as was alleged, it desired to enforce,
but it is much to be regretted that questions
involving grave moral considerations should be
argued on assumptions which are at variance with
any possible conditions of free intercourse. The
economic effect of the restriction was, for long, an
abnormal use of silver for the traffic, while profit-
able native industries did not receive the stimulus
which a naturally extended trade was calculated
to afford.
It is needless to multiply instances of the way in
which the uses of money which may appear obvious
in one country are ignored in another ; these excep-
tions do not invalidate the weight of the rule that
the free uses of money constantly escape the control
of artificial bounds. Money dealers may perhaps
make use of complications in current money to get
a base gain from the unskilled or unwary ; but for
their own purposes these entanglements are un-
ravelled. Whatever money may be said to be,
gold and silver, solely and simply, are established
as such by the usage of all ages and countries.
Least of all things is such money under the control
of any government regulations, or of merely con-
ventional morality. It is used for better or worse
according to the demand which is practical] y made
effective.
Money, in short, supplies a test, but not a prin-
ciple, of action. Men's wills and desires must
either be radically changed, or their persons most
METALLIC MONEY AND SUBSTITUTES FOR IT. 145
effectually coerced, to effect any change in the way
in which they will use it.
The more subtle forms of fraud and over-reaching
will ever be associated with mystifications about
money, and changes in the currency have always
been a favourite panacea with those who have most
reason to dislike the results shown by its impartial
disclosures.
The apprehended disturbance in the value of the
precious metals may give unusual speciousness to
attempts to tamper with the simplicity of the
indications they afford ; and those who, with the
best intentions, desire to avoid the recognition of
changes which, if they come about at all, will come
with inevitable force, may be found in concert with
those who would be willing enough to make the
currency itself the subject of licentious speculation.
It is on such occasions as these that a reference
to first principles is peculiarly needful, and these I
have endeavoured to elucidate.
CHAP. II.
CHAP. III.
The
British
pound.
CHAPTER III.
(Value.)
ON THE NATURE OF EXCHANGE VALUES : PROPERTY
AND CAPITAL.
1. THE validity of the principles which have been
advanced can best be tested by applying them to
existing monetary systems. In this country we
have a most complex and efficient commercial and
industrial organisation, to which I shall refer more
especially, as showing the operation of principles
common to all systems, though points of difference
as between systems more or less advanced will also
come under observation.
Little need now be said about our own unit of
value. It is a definite weight of gold. Had the
so-called price of the sovereign been 4/. per oz. this
would have been more easily recognised ; for the
fraction of a quarter of an ounce is thus plainly
indicated ; but the more cumbrous expression,
3l. 17s. lO^d. per oz., is resolved just as inevitably
into a fractional weight. As 31. 17,9. lO^d. is to
1 oz., or 480 grains troy, so is ll. to the sovereign
that is, to itself and can be nothing else than
123 ! 274, &c., grains of standard gold; and our
EXCHANGE VALUES : PROPERTY AND CAPITAL. 147
CHAP. III.
subsidiary coinage, whether of shillings and pence
representing aliquot parts of this pound, or our
paper Bank of England notes representing mul-
tiples of it, are not merely referable to, but at all
times convertible into, this metallic unit, which
may therefore for the present be assumed to be
throughout our common measure and standard of
value. Some questions on minor points of the
form of a portion of the money which obtains
currency will be referred to hereafter ; but this is
pre-eminently called the currency that which,
under the authority of the State, is made com-
pulsorily a legal tender, in the terms of which the
great majority of our obligations are, directly or
indirectly, expressed, and in which every member
of our society is necessarily concerned.
2. It has at different times been urged " "Why j Value ex
i -i / -i\ 11 11 P resse( l i
should gold (or silver) only be represented by! money,
paper ? Other commodities, undeniably, have value.
Why should there not be a land note or a com-
modity note as well as a bank note?" And the
reply has too often been given in a somewhat blind
spirit of direct contradiction. But in simple truth
they are so represented in every possible way that
convenience can fairly require. There are innu-
merable instruments and documents which repre-
sent value, such as cheques, bills of exchange, and
promissory notes, which circulate and pass from
hand to hand ; but, voluntarily only, and, speaking
generally, only among those whose position is such
that they can form a reasonable judgment as to
L 2
inherent
in it.
148 MONEY AND VALUE.
CHAP. III.
how far such instruments are worth the value
expressed upon the face of them : that is just as
far as they can circulate on their own intrinsic
merits. So also bonds and shares of all kinds
representing real property and obligations based
upon it circulate to a certain extent, and it is most
desirable that they should freely do so, with no
other restriction than that dictated by a common
sense of rectitude, viz., the nature of the value they
bear should not be concealed, but apparent by the
form of the instrument put into circulation. These
and many other means by which value is expressed
and transferred from one to another may represent
either separate class interests in their interior rela-
tions, as, for instance, the bills of exchange current
between wholesale and retail dealers : or more dis-
tinct interests in their relation to each other, as a
manufacturer's bills given to an importer for the
cost of raw produce, equally in both cases repre-
senting the voluntary dealings of those who to this
extent are associated, and more or less directly
co-operating, with each other. But for the perfec-
tion of a highly-organised system of industry, both
the manifold association and the perfect division
of labour are essential. Not only such related
interests as these, but many others, are temporary :
rigidly so as regards the several transactions
entered into, though similar dealings may, in the
ordinary course of affairs, be repeated over and over
again. Still, even in this class of operations, it is
1 of great importance that means of readily agreeing
EXCHANGE VALUES : PROPERTY AND CAPITAL. 149
upon an exact and definite line of severance of such
mutual interests should be provided, and so indeed
with all men regarded as consumers, with each and
all regarded as producers, throughout the innu-
merable articulations of society. To a very great
extent, no doubt, interests so related must stand or
fall together, and there cannot be a more whole-
some truth inculcated than that the increased
specialisation and division of labour of all kinds
implies and requires a higher order of mutual inter-
dependence. Still personal inter -responsibility of
the kind referred to should not be needlessly ex-
tended beyond the limits within which personal
co-operation is desirable. Money should have a
basis of its own, and be the common standing-
ground on which any one may rest, and from which
any one may start afresh, especially when, in
troublous times, existing relations of value, or, in
other words, prices generally, have been unusually ;
disturbed. The question very much resolves itself
into this simple issue : Whether the currency shall
have an independent intrinsic value of its own, and
whether that intrinsic value shall depend on that
commodity which, as a matter of fact, possesses the
most convenient and widely-recognised purchasing
power in the world. There is no limit to the
freedom of interchange of commodities, securities,
or property of any kind, or to the modes in which
they themselves may be represented, but none of
these have a general purchasing power in anything
like the same degree as gold, and what they have
CHAP. III.
150
MONEY AND VALUE.
CHAP. III.
Fallacies
arising
from con-
founding
the two.
not in themselves cannot, by any occult art, be
put into paper representing them. Moreover, the
question is not, in the present day, what forms of
currency can be got to work tolerably well, but
what afford the best security attainable as the
basis of a highly complex, and, upon the whole,
wonderfully efficient, system of social and industrial
organisation requiring coherence and unity in all
its parts, while preserving to all full security and
liberty of action. No doubt whatever should be
suffered to exist as to the universality of the
"purchasing power" of that one form of value
which any man is compelled to receive as "legal
tender" from another.
3. But the general aim of those who desire an
extended and variable currency based on securities,
seems rather to be that when commodities or
securities of any kind do not pass currently among
those conversant with them, that, indirectly, the
State should make them practically current by
issuing notes based upon them, and thus the
sacrifices necessary to insure a real adjustment of
value are to be avoided. Schemes of the kind are
constantly found either to involve some transcen-
dental notion of a fixity of value not warranted
by the changing conditions of the order of Nature
with which we must conform, or are empirical re-
medies not calculated to amend the cause, but to
disguise and avoid the effects, of popular delusions
regarding the comparative exchange value of some
special description of property. Thus, if there be
EXCHANGE VALUES : PROPERTY AND CAPITAL. 151
a " mania " regarding the worth of land in par-
ticular places, or of mines in any country, or
indeed of any new modes of applying industry ?
prices rise far above the range which the results
obtained will ultimately confirm. Meantime the
possessors of such fictitious sources of wealth will
have borrowed money on the security of them,
and the securities in whatever form they may have
been expressed will (as experience has often
shown) pass from one to another, or may be the
basis of other borrowings in other forms, till a
very considerable section of a community may
be involved in a vicious circle of fictitious value
without any special personal fault or greed or
recklessness of their own. If within this circle
only the value of the pound could be reduced
by a half or even a larger proportion, whether
by over-issue of notes, or in any other way, sub-
stantial rough justice might be done to a special
class of sufferers, and it is natural enough that
they and those whose sympathies are strongly
excited by special cases of distress, should desire
to adapt the common measure of value more
nearly to their own particular emergency, and
ignore the immeasurably greater interests of the
world at large whose dealings have been con-
ducted on a normal and rational basis. "When
I said a yard I ought to have meant a foot"
is virtually their plea, and so feet are to be taken
for yards by the great mass of people who have
been careful to say what they meant throughout
CHAP. III.
152 MONEY AND VALUE
CHAP. HI. in the ordinary dealings of productive industry.
Any such plain statement of the issue in question
is of course denied, and the enhanced value though
only purely nominal, is loudly asserted to be a real
element of wealth. That necessary condition of
value, so easily assumed in an a priori theory,
viz., the adaptability of the utility promised or pro-
duced to any presently felt want in the community
is most commonly vehemently alleged and the
fitting test of experience as vehemently decried.
But as far as a remedy can be found for such
misapprehensions it must be special and not
general. Such unfortunate debtors may perhaps
I be excused for paying 5s. or 105. only in the ,
I but it is too much to ask that 5s. or 1 Os. should be
; declared to be a pound in order to meet their
| self-imposed difficulty. In fact no money can
do more than facilitate the comparisons which
;will be well or ill made according to the intelli-
gence brought to bear upon the subject. Well
based money affords a good and practically exact
means of making such comparisons : ill based
money one which is more or less shifting, partial
and uncertain : but this is all. If any one is
urged to pay money for a share in a Company
to extract Moonbeams from Cucumbers, he must
;not look to the currency for any direct help in
forming his judgment on the feasibility of the
project ; but it does afford him a ready means
of comparing this offered share with commodities
; and property of many various kinds. He has it
EXCHANGE VALUES : PROPERTY AND CAPITAL. 153
equally in his power to buy so many pounds of CHAP. m.
cotton, or tons of iron, so many yards of town
land, or acres of fields in the country, or square
miles of virgin soil in fresh regions. He may buy
a share in a business, contribute to a school or
an hospital or an almshouse ; spend it in personal
luxury or pension a deserving relative. He may if
he will, without any very great difficulty, estimate
the comparative attractions of these and many
other courses open to him and give effect to his
rational decision. Or, he may buy the share in
the hope that some one more reckless and
foolish than himself may give him more than he
paid for it, and find to his sorrow that there is
a limit even to human folly. In any case a
sound currency can no more be to blame than
the inexorable rules of simple arithmetic, for the
falsity or exaggeration of his conclusions. The
unqualified purchasing power parted with in ex-
change for the share might, at the mere will of
the owner, have procured him any other of the
objects or gratifications indicated. As far as a
man is owner of money in this sense, he has
the choice of all vendible articles that the world
affords, and, as far as the conditions of the present
argument are concerned, is free from all anterior
obligations and at liberty to shape any course he
chooses for the future.
4. Eeal and personal property, securities, and
Exchange
value of
different
kinds of
obligations of all kinds, commodities, and even | property.
154 MONEY AND VALUE.
CHAP. III.
services, all come into the market to be exchanged
the one for the other in the common terms of
money, and we should know something of the
nature of all these and what severally it is that
can be bought and sold, in order fairly to under-
stand under what conditions these exchanges can
be effected.
Let us try to trace therefore, from a monetary point
of view, what is done when property and securities
of different kinds are bought and sold.
Land, for instance, may in this country be said
to be always worth more than it could possibly be
made to produce in one or even in twenty or thirty
years' time. Its price is said to be at " so many
years' purchase" on the income of one year. It
is simply absurd for any one who willingly pays
forty years' purchase for a coveted property to
complain he only gets 2^ per cent, for his money.
How could it be otherwise ? And quite as much
so to expect that low interest and a low value of
property can be secured together.
So also as regards the National Funded Debt :
the money received by the State has long ago been
spent and its sole obligation is to pay an annuity
at the rate of 3 per cent, per annum on every
100?. nominal stock, until it may be redeemed.
If Consols go up from 95 to par, the nominal value
of this stock is increased by over 35,000,000?.,
but the country is not one penny the richer or
poorer, nor can it even be predicated that we are
in any way in a worse or better position at one
EXCHANGE VALUES : PEOPERTY AND CAPITAL. 155
time than at the other. It is simply a question
between buyers and sellers.
Again the figures representing money on a share
in a Kailway, Dock, or any such Joint Stock Com-
pany, serve only to indicate as far as the share
has been paid up, the money which has been spent ;
the share itself represents an aliquot part of the
present good-will, property, and whatsoever else
may constitute the value of the undertaking.
Neither the corporate body issuing the share nor
any one else is bound to refund the sum so ex-
pended, and an owner who desires to sell must
find some one who, in exchange for his portion of
and interest in the concern, will restore to him,
probably not the exact " purchasing power " with
which he parted in buying or paying up his share,
but some greater or less sum as may be agreed
upon between them. The original capital, in this
case also, represented on the share in the terms
of currency, is probably consumed altogether for
the support of labour expended on the work ; but
the same currency equally measures, and will
measure and represent over and over again, the
capital presently in existence, which in its turn
passes away and will over and over again be replaced
by production. Here also the year's income bears
a small proportion to the total expenditure or to
the prices paid on the transfer of shares. A good
or bad dividend is a fair indication as to whether
the undertaking is adapted to supply existing
effective demand, but the price of the shares is a
CHAP. III.
156
MONEY AND VALUE.
CHAP. III.
Why such
properties
are not a
fit basis for
money.
mere matter of adjustment between individual
buyers and sellers which does not in any way
directly affect either the interests of the corpora-
tion or the national wealth.
Securities based upon such property are subject
of necessity to very similar conditions. A mortgage
from a monetary point of view is a conditional
payment as for purchase, which, if certain stipula-
tions are carried out, will not be completed ; mean-
time the holder is only in qualified possession of
his property and of the income derived from it.
Railway debentures not many years back were
commonly regarded simply as morl^ages of land,
but when it came to the crucial point of entering
into possession, it was evident that a slip of land
perhaps a hundred miles long by ten yards or so
broad, much encumbered with ballast, here shut
out from the sun, and there exposed to the
elements, was not the kind of property into which
an ordinary creditor could enter with advantage.
Adapting the form to the facts of the case, deben-
ture stock is now a first charge on all the rights
and properties of the corporation which issues it-
Speaking generally it is merely a case of divided
ownership as between debenture and other stock-
holders ; and so it is generally with debentures
and debenture stocks secured on productive pro-
perty of other kinds.
5. Land, Government stocks, railway and
other such shares, have this in common. Many
years' income is sold for a value expressed in
EXCHANGE VALUES : PROPERTY AND CAPITAL. 157
money paid down at once, and setting aside mere
exchanges of property, this necessarily implies that
there is on the other side a similar amount of
accumulations made during former years which
can be paid for this prospective advantage. The
owner has a right as against all the world to his
property, and to all that in the course of nature he \
can derive from it ; but he has no right whatever j
against any one for the price he has paid for it.
Subsequent sales are a matter of subsequent adjust-
ment with other parties altogether. The relatively
high prices given for income to be received here- .
after not only indicate a confidence in the stability
of the annual resources upon which it depends, but
a more general faith also that the same or some
larger proportion of accumulated earnings will at
any time hereafter be forthcoming should the buyer
desire to reverse his position and sell again. And
as long as the country remains fairly prosperous
this expectation is likely to be fully realised.
But it will be seen that the nature of the security
afforded is of a very different kind from that which
is vested in the precious metals, and can never be
an appropriate basis for the issue of money. A
period of pressure is just the time when all desire
to keep their accumulations in hand, while on the
other hand there is every probability that a more
than ordinary number of sellers of income would be
driven into market. The value of such property is,
in the long run, comparatively stable, depending as
it does on the average product of a range of years ;
CHAP. III.
158
MONEY AND VALUE.
CHAP. III.
Property
yielding a
periodical
but though it is thus removed from the ordinary
chances and fluctuations of more active enterprise,
it does not form an independent reserve of value
generally and widely available. It is essentially
a local and not a general security, and can be sold
only by taking value in large proportion out from
the general fund which, in the case of any sudden
emergency, it is desired to increase. Before the
seller of such property can return the value he has
received he must first get a buyer who is able and
willing to withdraw it. The security for such a
purpose is wholly illusory, and if paper money has
to be issued at all, it is far better to make it on the
direct responsibility of the State, than with any
pretence of a security which could only be used
when it was not wanted.
The imposing notion of money based on real
productive property has certainly captivated the
imagination of some skilful advocates, but the
substance eludes the grasp of those who attempt
to realise it.
6. To return, however, to the main argument.
Similar conditions attach to all property which
is sold on any estimate of its annual production.
Whether the phrase " so many years' purchase "
is used or not, an investor is sure to look most
directly to the income or dividend which he may
expect. If a direct and certain answer can be
returned to his inquiry, a price can be fixed upon
with comparative ease and certainty. But other
considerations of future hopes and fears may also
EXCHANGE VALUES : PROPERTY AND CAPITAL. 159
come into play : the sum given for uncertain results
is more a matter of individual opinion which must
stand or fall by the test of time. But whether
we are considering real property : ships, mines,
factories, the securities based on any of them, or
partly even the capital embarked in commercial
undertakings, the estimate formed of a future
periodical income is the chief factor in the calcu-
lation formed of their present value. There may
be many other exceptional " unearned increments "
besides that of the economic rent of land, but
nevertheless the great rule of production is that
this income has to be continuously earned by
adapting supply to more or less variable conditions j
of demand. It is a question of tense, but the time j
when is of the very essence of the question.
The corollary is inevitable, opposed as it may be
to many vague popular ideas of wealth. If the
income and all reasonable expectation of income
ceases, the so-called value of the property has
already ceased and determined. Its very raison
d'etre has passed away. But the capital which
has been sunk is that of bygone days : the pre-
sent and prospective loss is of income only. Losses
are made for the most part, not when, but long !
before, they are discovered and acknowledged. A
burden has already been more or less consciously
borne, which can be lightened in the future only
by fully recognising the changed conditions under
which our industry can be effectively reorganised.
A nominal item of capital based on the expectation
CHAP. III.
160 MONEY AND VALUE.
CHAP. III.
of earnings which can never be realised has to be
struck out of the account. But on these premises
only it is impossible to predicate whether the
nation has suffered or will suffer any detriment,
or whether it is only that obsolete modes of
working or sources of supply have been super-
seded by those which are better.
Let us take the case of any undertaking on
which capital has been expended, but which cannot
or does not yield any income. I am far from
urging that such an enterprise should be hastily
abandoned ; on the contrary, the ultimate success
of many good schemes depends upon the patience
and strength of their conductors to endure unex-
pected and often undeserved losses. Temporary
difficulties may at the outset beset the best laid
plans. It may even be within the limits of sound
though certainly somewhat dangerous policy to
grant some special support or immunities to a
branch of industry struggling to make good or to
maintain its position as a fairly productive and self-
supporting agency. But if this cannot be done,
it is idle to suppose that capital can be saved by
artificial protection. The owners of the property
may by this means be enabled to sell or to live
upon what is nominally their undertaking ; but
the true working of the operation is best explained
thus : A has " sunk " his money and has no hope
of getting any return from it which can be sold to
bring him in an income. Artificial aid being afforded
to A's undertaking, he sells " it " to B, who, under
EXCHANGE VALUES : PROPERTY AND CAPITAL. 161
CHAP. III.
any circumstances, would have to bring in quite
new capital to pay to A ; but what A really sells to
B is his right to get indirectly from the taxpayer,
or from whatever may be the source from which
artificial support is drawn, an income which must
in some way or other be earned by some one year
by year. A, no doubt, is personally recompensed.
He is saved, but the loss which is not and cannot
be retrieved, is merely thrown upon others ; and
in all probability is greatly aggravated by the
surreptitious and indirect way in which such com-
pensations are usually afforded. If the interest
represented by A has any claim to compensation,
by all means let it be fairly adjudicated, but do
not let us be under any delusion as to the effect of
the award.
7. Lastly, it must be observed that as the price ! Several
of all income-yielding properties must be an equa- j property
/ T I'll ' an( l securi-
tion oi their aggregate value with the total sum of j ties,
accumulations which, at any one corresponding
time, is held applicable to their purchase, such
(actual) price will fluctuate irrespectively of the
purchasing power of any given unit of money, or
of any fluctuation in that purchasing power. No
change in the common measure of value can change
either the proportion wbich the income bears to the
" principal " paid, or the proportion which one
aggregate of value bears to the other. But these
several elements of relative value will themselves
be liable to variations as when income rises or
falls, or property of different kinds comes into more
M
162 MONEY AND VALUE.
CHAP. III.
or less demand from causes which lie quite out-
side the question of the stability of the exchange
value of money itself.
Securities, or obligations based upon such pro-
perties, the value of which is expressed in a fixed
sum of money, are secured, to the extent of the full
value of the property upon which they are issued,
against all fluctuations in value from these causes
(except in so far as the owners may desire to sell
them before the time when they become payable),
and, in all cases, from the first brunt of the risks
and uncertainties which attend upon ail under-
takings in a greater or less degree. But they
are directly liable to fluctuations from any change
in the value of money itself. It is within the limits
of possibility that if this were very largely to in-
crease, the income as fixed in money might absorb
the whole revenue derived from the property
assigned. On the other hand, if money were to
depreciate, the value of the security would fall with
it, though its safety could not be adversely affected,
but rather the reverse. Taking all contingencies
into account, there is one class of risks to be set
against another ; as between property, which, having
no fixed value in money, will sell for more or less
money as that money is worth less or more, but
subject always to the risks and conditions of pro-
duction, and of the market, just referred to ; and
the obligations based upon it, which are secured
from all risks except that from which property is
exempt. And it must not be forgotten in the
EXCHANGE VALUES : PROPERTY AND CAPITAL.
163
estimate that gold possesses elements of stability
which do not attach to any other kind of property
whatever. The value, or more strictly speaking,
the balance of value of property charged with
obligations expressed in fixed sums of money, is
exposed to fluctuations from all the causes referred
to. 1
Money in any substantive form is seldom required
at all for any such transactions, though concurrent
values, i.e., the exchange values at the moment
of interchange of so different a nature, are all
expressed in the terms of it.
It is further evident that the value of all pro-
perties and securities of the kind referred to, must
1 Here, however, a further word of warning may be appropriate.
No doubt, if the common measure of value is likely to decline a new
element of risk is introduced into all securities which are specifically
made payable in it. But it would be a very one-sided conclusion that
therefore securities generally should be sold or avoided and real pro-
perty bought in preference. For the prices of both kinds of posses-
sions are not fixed, but based upon an ever- varying estimate of the
prospective advantages of all kinds to be derived respectively from
them. If such a rule as this were popularly accepted we should cer-
tainly have real property unduly enhanced in price, and securities
expressed in money as unduly depreciated. In dealing with values
it is never safe to assume any fixed datum, as is so often unconsciously
done. The necessity of a rational comparison between relative values
cannot be evaded. The best remedy for the risk incurred is to save a
" sinking fund " out of the income received, which may be set against
the apprehended depreciation, and a compensating reduction in com-
parative value of securities is all that is required for the purpose.
This precaution no doubt would often be neglected. Still securities are
not so named without some very real significance, and are preferable
for many reasons for all those investors who have not the capacity or
opportunity to maintain that supervision over real property which its j
interests usually require.
CHAP. III.
164
MONEY AND VALUE.
CIIA.T. III.
Value and
capital.
be some multiple of the anticipated increase which
may gradually be derived from them, and the next
step is to see what these accretions are, how they
may be used, and how and in what sense they can
be said to be accumulated. The further application
of the test of money will throw yet more light upon
the nature of its own yalue, and of the value of all
things measured by it.
8. As the terms "value" and " capital" will be
frequently used in this enquiry, I must explain as
briefly as I can the meaning to be here attached to
them ; not only because these words are often ver} T
inconsistently apprehended, but also because I wish
specially to bring into prominence the view of
utility and its correlated value as dependent upon
continuous adaptation and adjustment. Though
the word price is commonly used to represent the
terms of interchange as expressed in money at any
one time, and value the purchasing power based
on more permanent considerations, both are subject
to the same conditions, which however affect them
somewhat differently ; so we must understand the
nature of value in order rightly to interpret the
meaning of fluctuations in price expressed in money.
Capital also, as consisting of certain aggregates
of commodities, must be duly considered in the
same context.
9. The value in exchange of all things the pro-
duction of which can be indefinitely increased is no
EXCHANGE VALUES : PROPERTY AND CAPITAL. 165
doubt referable ultimately to the quantity of labour . CHAP. m.
requisite for such production, as Adam Smith and j
change
Kicardo pointed out long ago but of course only Ineedfei for
i -, / aU forms
the quantity necessarily or usefully employed can be of civiiisa-
taken into account. Mr. J. S. Mill, however, by
some of his definitions, appears to imply that
the question of value is fundamental only in an
industrial system founded on purchase and sale,
and writes (Prin. of Polit. Econ., Book iii. c. l) :
" The conditions and laws of production would be
the same as they are, if the arrangements of
society did not depend on exchange, or did not
admit of it." But though exchange would not be
aptly described as " the fundamental law of the
distribution of the produce," it is surely a necessary
condition alike of that division, and that association
of labour upon which all civilization depends. It
is difficult even to conceive of any state of society,
especially any in which population and natural
resources stand in anything like the same propor-
tions as they do in the more prosperous countries
of the world, where such interchange was not a
condition of their very existence. Production it-
self, as it must be understood in all such cases, is
conditioned not merely casually, but necessarily, by
the practice of reciprocation and interchange, so
that if labour is to be organised at all, the funda-
mental laws of exchange value must obtain, even
under a system of purely equal communism, which
is only conceivable under the condition of assuming
an ideal state, which should not only redistribute
166
MONEY AND VALUE.
CHAP. III.
Economic
rent.
the inequalities in the results yielded to equal
quantities of labour, but also require that these
unequal results should be fairly yielded by such
equal quantities of labour employed under differ-
ent natural conditions. And if this be the case,
a knowledge of the laws of relative value and of
interchange is not only necessary for rightly under-
standing the working of any existing system of
social organisation, but should be equally the basis
of any and every theory for its amendment or
regeneration.
Thus the economic rent of land under culture, as
far as it represents a fact in nature, must as inevit-
ably accrue as the difference in value between rich
and poor metalliferous ores which can be worked at
the same outlay. Land and ore are both " natural
agents," and if in the same sense they are unequal
in value, the inequality can be identified as soon
as the fact of the difference becomes known, and
exists not the less because the overt expression of
it may be suppressed by custom, or overlooked
from ignorance. If a division be essayed on the
basis of an equality of production, an unequal
balance of human energy, or potentially productive
labour, is thrown out. If on the basis of an
equality of human exertion, a difference in the
quantity of products is the necessary result. These
differences may be wasted, or they may be neg-
lected, but not the less are they in reality of that
kind which can equitably be represented by money
and brought it matters not to the argument under
EXCHANGE VALUES : PROPERTY AND CAPITAL. 167
what conditions within the system of social inter-
change of value. Beyond this there are differences
in productive power between labour aided and un-
aided by tools or machinery, or aided in different
degrees ; or which can be more or less efficiently
organised. Risk, health, social convenience, and
many other considerations have all to be weighed,
and the somewhat abstract notion of a " quantity "
of labour implies the necessary sacrifice directly and
indirectly of energy, rather than mere exertion of
either brain or muscle. The range within which
any comparison can be made is of course limited
by natural conditions of race and country, nor is
there any formula by which to estimate the relative
outlay of energy by a watchmaker or a navvy, a
hack writer or a scientist ; but in all such cases,
though the centres of difference, if I may so speak,
are widely separated, the margins touch and over-
lap, so that while the total value of labour in each
circle must be equated separately with the total
demand existing for it, and in daily practice will be
equated in the terms of money, the different results
so presented by this equation show cause more or
less adequate why a transfer of labour from one
industry to another should be considered or at-
tempted, and "quantities" of labour are thus
experimentally tested and estimated.
One qualification however must be made with
regard to labourers in a highly organised state of
industrial society. Work is subdivided into many j
different sections with incalculable advantage to the !
CHAP. III.
Qualifica-
tion.
168
MONEY AND VALUE.
CHAP. Ill,
Value "in
use " and
in ex-
change.
power of production ; but this condition is involved :
each one who takes up, and carries on, a section
of the whole task to be done before any commodity
can be adapted for use, has to deal with materials
which have already acquired exchange value in
virtue of labour already bestowed upon them, A
bad workman therefore may very readily waste
more value than any exertion of his own can give
to the object upon which he is engaged, and he
thus may become rather a spoiler than a producer
of utilities. Hardly any form of labour is so
ignobly " independent " as to be exempt from this
condition, and the quantity of it, which can be
accepted as imparting value is limited inexorably
by the very necessities of civilization.
No limits can be assigned to the exchange value
of those things the supply of which is absolutely
limited, whether permanently or casually only, by
the conditions under which any one act of inter-
change may be effected. And it may be remarked
that the value of things appreciated only or chiefly
for their rarity will depend rather upon the means,
judgment, or caprice of the buyer than on the
estimation of the owner.
1 0. The elementary conditions of free association
imply a free interchange of services. It follows
that those who receive services, or, more adequately
to express the inter-relation, all men as receivers of
services, will exercise their own discretion as far as
they can, in the choice of those services whether
directly rendered or ultimately yielded in the form
EXCHANGE VALUES : PROPERTY AND CAPITAL. 169
of commodities which they will accept ; and all as CHAP. m.
rendering services will reasonably prefer to afford
those which they can most readily perform. This
is the fundamental principle of free trade in its
broadest sense. The contrary implication involved
in a system of exclusive privilege or monopoly is
altogether untenable as affording any rational basis
for reciprocity. A right to render service without
regard to the preference of those who are supposed
to be served is so obvious a contradiction that the
desire to impose conditions so anomalous has been
constantly disguised under some specious pretext.
Hence it is that value in use has been so perversely
confounded with value in exchange, or value of that
kind which is in correlation with the free inter-
change of services. Long ago the first principle
upon which the latter is based was partially seen,
but this did not suit the pretensions of those who
desired to secure to themselves an absolute right to
all surplus products, or to the services of all those j
supported by such products : in other words, to
all they could possibly obtain. And their justifica-
tion was appropriately found in " a truth which is
half a truth." The natural increase of the harvest
or of the flock was considered as the " gift of God,"
which was appropriated by those who were strong
enough to keep possession of it. But such exclusive
possession can only be maintained either by force
as a right of war, or as a political institution, sub-
ject absolutely to such conditions and changes as
the higher \velfare of the State may require. The
170 MONEY AND VALUE.
CHAP. III.
doctrine, however, was, and still is, most admirably
suited to monopolists of all kinds, aristocratic,
commercial, or democratic, and a system of exclu-
sive privilege rendered physically tolerable by
almsgiving will always be in favour with those
to whose class-interests the impartial application of
equal principles of justice is obnoxious. But the
properties inherent in all materials whatsoever upon
which human care and skill can be beneficially
employed are in the same sense equally a "gift"
to all mankind, and the mysteries of these gifts in
organic and inorganic matter are alike absolutely
inscrutable and beyond our powers of production.
The great principle in the economy of the industry
of a free people, is that the labour bestowed in
rendering these " gifts " available for use, and not
the " gifts " themselves, is the ultimate basis of
that kind of value which can be rightly brought
into question between man and man, though the
relative serviceableness of the labour bestowed
cannot be left out of consideration.
The theorem does not traverse the relative duties
of classes or of individuals to the State or to
each other, but affords an equitable basis upon
which mutual obligations can be determined and
regulated.
Producers may not directly or indirectly force
on their own terms their products upon others : nor
may consumers dictate the terms upon which pro-
ducts shall be rendered to them. The choice of
what is most acceptable to himself must rest with
EXCHANGE VALUES : PROPERTY AND CAPITAL. 171
the consumer. The best, or rather the most suit-
able, services will command a preference. Every
" producer," on his side, must have an equal
freedom of choice as to the way in which he
may strive to make his services acceptable. The
"quantity" of labour required and which will
willingly be accorded thus becomes the ultimate
measure of reciprocal value.
11. Underlying all are the great laws of physical
necessity. There is no possible escape from the
stringency of the law that men are kept alive by
the continuous consumption of things which can
be replaced only by the continuous application of
labour. But under favourable conditions, where
abundant natural agents are at command, where
labour is skilled, organised, aided by art and by
science, all the primary wants of the whole can
be fully satisfied by the results direct or indirect
of a part only of the labour of the community.
Utility among other conditions depends upon a
right adaptation of quantity, and a superabundance
is valueless because it is in fact useless. When
the prices of any commodity are forced down,
owing to casually excessive supply, it is merely
an indication that the holders of it are striving
to escape the natural penalty of a misadaptation.
They are glad to get it applied to some use on
any terms, though it may not be that to which it
is naturally fitted, but the permanent conditions
of value are not thereby materially altered. The
CHAP. III.
The physi-
cal bases
of value.
172 MONEY AND VALUE.
CHAP. in. surplus of labour the primary wants of which
are provided for- can only come into the great
common field of co-operation by supplying utilities
things or services which though of greater or
less perhaps very much less importance than
the due supply of the necessaries referred to, are
still infinitely more useful and valuable than an
excess of them : and as far as there is free
intercourse between the different occupations thus
arising, the value of equal quantities of labour
will not be very diverse. Still the process of
equation always going on is a double one : viz.
that of the " utilities " which the workman may
receive on the one side for his own satisfaction,
and, on the other, of the relative quantity, bearing
value, which each workman may render for the
satisfaction of others : the former represented in
money as " wages " and the latter as the " cost of
production." Whoever may be the owner of the
products of the surplus labour indicated or even
if it be not applied to material production at all
it is equally clear that a strictly fair comparison
between "wages" and "the cost of production"
is essential under any just system whatever of
organised industry. The higher cost of different
utilities is no exception to the rule, for it will be
found to resolve itself into the duplication and
reduplication of laborious processes. Eough iron
may thus be worked into fine and costly steel
implements by successive quantities of labour ex-
pended upon it, and so bear a very high value,
EXCHANGE VALUES : PROPERTY AND CAPITAL. 173
though the remuneration given throughout may
have sufficed to procure for all alike only the
common necessaries of life.
The existence of such a surplus is clear in every
case where agricultural rent is paid for land. The
accretion of it arises under conditions over which
the rent-owner has no control, and it is incontes-
table that the necessities which give rise to the
charge, and not the charge itself, govern the cost of
production. Still it is equally true that on all rent-
paying land, the total value produced must equal
all rent as well as all costs, direct or indirect,
expended upon it. A less production would pay
all costs of production, i.e. provide, at the least, all
necessaries according to the scale of usage actually
obtaining, for all workers employed. The rent
therefore must represent a surplus of production
not required for those workers, and which can only
be reasonably employed to support other workers
engaged in other ways than in the production of
such necessaries as are already, ex hypothesi, sup-
plied for them. What value of utilities " all cost "
may represent it is impossible to say. It may be
enough barely to provide scanty food and clothing,
or suffice to provide a large share of the comforts
of life. A very small proprietor might indeed not
have enough to support himself; but in no case
could the labour of a rent-owner as such be re-
quired to produce the value of the share he receives.
The same cannot be said of the profit of a farmer or
trader, whose work is necessary although it may
CHAP. III.
174
MONEY AND VALUE.
CHAP. III.
Aggregate
money
value
made up of
manifold
inter-
changes.
afford him only a meagre livelihood. It needs
no proof that remuneration under whatever name
it may be acquired is often much in excess of this,
but profits using the term as indicating one of
many ways in which services are recompensed
are often earned under arduous conditions and
associated with peculiar risks : they must not be
confounded with the profit in a more general sense,
which accrues to the nation or individuals by the
excess of production over consumption. This point
will be referred to more fully in the next chapter.
12. Statisticians who have attempted to estimate
in the terms of money the total income of the
country have sooner or later found that they were
counting incomes over and over again, and have
therefore sometimes set very arbitrary limits to
their investigations. But the fact should be ac-
cepted from the very first and be no bar to carrying
on the calculation to the very last. A general idea
of the condition of every one in a country is more
intelligibly conveyed by stating his income in the
common terms of money than it could be in any
other way, and, rightly understood, the sum of
incomes duly classified, gives a very fair impression
of the material condition of the whole community.
But no idea can be properly realised of any income
which does not follow it as being spent. Directly
or indirectly it must go to make up other incomes,
and the result -is necessarily distribution, though it
may be distribution in very uneven proportions.
Thus a wealthy man spends so much on plate : the
EXCHANGE VALUES : PROPERTY AND CAPITAL. 175
silversmith has his profit, a portion of which he
may spend on plate too, or on any other super-
fluity : so with his foremen and skilled workmen ;
so on to the worst paid productive labourer, who
must at the least have wages enough to supply him
with the necessaries of life. There are innumer-
able ramifications and interlacings of industry, but
this much is certain ; that however intrinsically
worthless the thing produced or service rendered
may be, if accepted at all, the first necessaries of
life are earned in exchange for it ; and as a matter
of fact many of the most evanescent and trifling of
luxuries are so highly paid for, that the producers
are themselves large consumers of mere superfluities
under the same conditions, viz., all who contribute
to their production earn a certain minimum wage.
13. So it is nothing less than a hard fact that
merely to lessen expenses, even on the most worth-
less trifles, in order to give the money away in
alms, may be only putting the bread into one
mouth by taking it out of another. Well-to-do
workmen, if their trade partially leaves them, may
save, but they cannot do so except on the same
condition of withholding their outlay in some
direction. It is this half of a truth that gives
rise to the popular notion that the mere spending
of money is good for the country. Very much
in accordance with it I have heard a landlord, of
whose personal beneficence there is no doubt, argue
that it would be a good thing if land were exempt
from all rates, as then the owners would have more
CHAP. III.
The ex-
change
value of
super-
fluities.
176 MONEY AND VALUE.
CHAP. III.
to spend in wages. A certain section of shop-
keepers urge that they pay taxes which support
the national expenditure, and if their profits are
lessened they cannot continue to do so. Extrava-
gantly-managed corporations boast of the support
they give to various tradesmen who live by sup-
plying them with luxuries. The bare facts cited
are true, but as an argument they are utterly
worthless : any one may retort that if he also has
less to pay in one direction he will have more to
spend in another.. If the butcher gets 3d. per Ib.
less for his meat, his customer has just so much
the more to spend elsewhere. The argument is a
purely personal one as to who is to have the
preference. No doubt labour is supported by all
existing industries, and they are supported by all
that is actually spent upon them, but that is a
totally different thing from admitting that all
existing forms of industry are necessary for its
support, or are the best adapted to embrace all
capable of labour within their limits. Forcibly
to destroy any industrial organization on the
ground that its products were intrinsically worth-
less, would in all probability throw out many
labourers from the circle of industry, which, as
far as they are concerned, is productive : but
when one industry is developed in fair compe-
tition with another, no such ill-effects are to be
apprehended the presumption is strongly that
more are included in it, and that though some
may suffer, more must gain.
EXCHANGE VALUES : PROPERTY AND CAPITAL.
177
14. The true problem is twofold : how to qualify
men for labour, and how to find suitable objects
on which to employ it. In no other way can the
total value of products be increased and duly
distributed. The mere spending of money does
nothing whatever to overcome this difficulty.
Promiscuous almsgiving tends only to organise
pauperism ; while restrictions and monopolies go
far to make the solution of the problem impossible.
Here is a feather : a mere trifle which would
cost let us say 51. to obtain, but it is the fashion
of the day, and 10Z. will be readily given for it.
What are the indications of money regarding it ?
First as to price. Fashion is urgent and wants it
to-day, though it might be had for half the cost a
little time hence. Moreover we may perhaps find
that the dealer fears that next year no one will buy
such feathers on any terms, and remote considera-
tions of cheaper cost have little weight with him.
Next as to the buyer. He has no more urgent
wants left to satisfy : nothing that he can get for
101. at the moment gives him more gratification
than this feather.
As to the seller, or the several sellers, who may
have contributed to the supply ; the price to them
is meat and drink and clothes : a little bonus, per-
haps also, to set against bad times past or to come.
The next freak of fashion may be quite out of their
way. They have " a right " to the price they can
obtain ; but if their feathers be not sold they may
have to eat the bitter bread of " charity."
CHAP. III.
Contrasted
nature of
related
values in
exchange.
178
MONEY AND VALUE.
CHAP. Ill
Capital :
the requi-
sites neces-
sary to
support
life.
Take any other article of not quite so capricious
a value : the replies will still be similar, only the
sellers will be somewhat more securely within the
circle of independence.
Such are the indications of money regarding
value in exchange these or such as these, and
nothing more : and what further, as to the neces-
saries of life. In a wealthy country which avails
itself of the best resources the world has to offer,
they tend naturally to be relatively cheap. Dealers
have no fear that these will go out of fashion : they
get them with confidence from the best sources of
supply and can sell them for the barest margin of
remuneration. " Growing more potatoes " is evi-
dently not the remedy for these discrepancies. A
nation not absolutely poverty-stricken has rarely any
difficulty in obtaining a supply of the common neces-
saries of life, and our own country has far passed the
stage when such considerations occasion any anxiety.
The great problem which has to be solved is how to
embrace all members of the community in the circle
of reciprocal service and industry best adapted to
satisfy not only the physical wants but the higher
requirements of a well-reasoned civilization.
15. Capital, as I think, may be most conve-
niently regarded primarily as the accumulated
stock of the necessaries requisite for the support
of life during the time when the work of repro-
duction is being carried on to completion. We
have thus as the essential elements of production :
EXCHANGE VALUES : PROPERTY AND CAPITAL. 179
natural agents or the materials upon which labour
can be employed; labour to be employed upon
them ; and capital required to support it until the
products are completed and fitted in their turn for
consumption. Mr. Mill, however, puts forward a
somewhat different view (Prin. of Polit. Econ.,
Book i. c. 4. i.), and writes : " The distinction
between capital and non-capital does not lie in
the kind of commodities, but in the mind of the
capitalist in his will to employ them for one
purpose rather than another : and all property,
however ill- adapted in itself for the use of labourers,
is a part of capital, so soon as it, or the value to be
received from it, is set apart for productive re-
investment." A definition which seems open to
the grave objection that at the least it assumes,
as a general truth, conditions which obtain only
casually even in countries which are not only
wealthy but prospering. In writing a history of
the development of production it might no doubt
have been assumed that those who carried out the
design of applying their wealth to productive pur-
poses, had, in fact, been able to make the exchanges
required to enable them to do so. Naturally also,
when speaking of the current work of production,
only that portion of capital is referred to which is
actually employed, or is seeking for employment in
it. But when dealing more specifically with the
problems connected with the developement of in-
dustry it is asking too much to grant any such
assumption. It may indeed be said in dull times
N 2
CHAP. III.
180 MONEY AND VALUE.
CHAP. III.
in the London money-market, " There is no capital
anywhere ; " but we all understand that there is
abundance to be had if the owners can only see
their way to employ it to advantage. The will of
the owner no doubt determines whether he will
attempt to apply it productively, and I am quite
ready to admit that the will for the purposes of the
argument may generally be assumed to imply the
skill requisite to give due effect to its decision.
But this is a very different thing from assuming
that a picture, or a vase of crackled china, or a
bale of velvet is capital in virtue of the intention
of the owner especially in the abstract sense
which Mr. Mill's definition implies. Before any
A can receive value for his picture in the form
of capital which can support labour, he must find
some B ready to do just the reverse. B goes out
and A comes in to the sphere of productive industry
when this is accomplished, but not before. Two
minds, not one only, are concerned, in what is after
all merely a change of ownership. And it is hard
to see why an intention to employ the value of
property unsuitable to support labour should be
held to make capital, any more than an intention
to work, or an intention to discover new mines or
lands, should be held to constitute " labour " or
" natural agents." Capital, labour, and natural
agents are equally the material requisites for pro-
duction, and it is surely far more closely in accord-
ance with the facts with which we are concerned to
consider them alike as the resources with which
EXCHANGE VALUES : PROPERTY AND CAPITAL.
181
mind and intention have to deal, and by means
of which the intentions of the mind are carried
into substantive effect.
Moreover, in treating of material substances, it
is apt to lead to confusion if a distinction is drawn
where materially speaking no difference exists. We
have already seen the very unstable kind of equili-
brium which arises from the production of mere
superfluities : are the workers to be considered as
consumers of capital or of non-capital according as
they succeed or fail in their efforts to make their
labour productive ? And what is to be said of the
consumption of paupers and those out of work,
which in a civilised country is as necessary as
that of any other members of the community.
It is in economic terms a drain upon our capital.
There is in this case no material requisite of pro-
duction wanting. No doubt effectual intention
only is required, but I submit that, if that can be
brought to bear, it is better to say that " unpro-
ductive " capital has been made " productive," than
that non-capital has been made capital, or that
capital has been "created," when the material
substance implied has not in any way been
changed by the intention. The definition has
led, and I think is calculated to lead, to the
prevalence of very pernicious fallacies. There is
a cry for capital when it is under our hands if
only we could make good any intention to utilise
it, but neglecting and ignoring that which we
have, there is still a cry for more and other
CHAP. III.
182
MONEY AND VALUE.
CHAP. III.
Fixed and
circulating
capital ;
objections
to these
terms.
capital to be got by the sale of superfluities
which by no possibility can be other than super-
fluities in any one's hand. The making of them
was an irretrievable action of the past. Whoever
has them can only hold them for the uses for
which they have been fitted. They may perhaps
be a useful and permanent form of wealth, but
can only be exchanged for capital when capital
is already in abundance. I refer here to the defi-
nition only without reference to Mr. Mill's views
as elsewhere more fully expressed, and cannot but
think that an apparent simplicity has been gained
in it at the cost of real obscurity.
Practically speaking in so wealthy a country
as England there is always a superabundance of
capital at command without taking thought for a
moment of thiDgs ill-adapted for labourers' use,
provided that the intelligence which directs labour
can find labour suitably qualified for the work it
desires to undertake ; but in countries which are
really poor, an actual want of accumulated capital
may be the first great difficulty in the way of
improving the conditions under which labour may
be made more productive.
16. Capital is further spoken of commonly as
circulating or fixed : neither of which terms has
ever been regarded with any satisfaction. The
so-called " fixed" capital sunk in a factory or in
workmen's tools is employed to assist and economise
labour, which is a very different conception from
supporting it. Further, the factory or the tools are
EXCHANGE VALUES : PROPERTY AND CAPITAL. 183
worn out and consumed just the same as a work-
man's clothes, and have in like manner to be
replaced, so " fixed " capital does circulate only
in rather different cycles. Nor does the term
" circulating " itself aptly represent the continuous
process of consumption and reproduction which
takes place as regards capital properly so called.
]\Ioney does circulate and it would be well if the
epithet could be specially appropriated to money.
But a continuity of entirely new and ever fresh
production, maintained moreover only by the
equally continuous efforts of well-applied industry,
is a conception so radically different from that of
mere " circulation " that it is to be regretted that
the term was ever adopted in its usual connection.
I have already ventured to use the words " pro-
ductive property " instead of " fixed capital " in a
way which I trust will not have appeared either
strange or unintelligible. The factory or machinery
or other appliances in which capital is said to be
fixed have not, it is true, the recuperative power
which is inherent in land neither have mines
nor even in the case of land does this unique
quality constitute in itself an element of exchange
value. Economic rent thus stands alone as a
possession of a peculiarly specialised description ;
but for the rest, why should not stock or property,
as well as capital, be distinguished as " productive "
or " unproductive " ? and if the latter be no longer
misdescribed as " fixed," it need no longer be mis-
represented as "circulating."
CHAJP. III.
184
MONEY AND VALUE.
CHAP. III.
Labour
and capital
are factors
constantly
variable.
There is, however, another side to the question.
We speak of labour unskilled, or skilled in greater
or less degree ; this usually implies that it must be
'urnished with the appliances and tools necessary to
make good the distinction ; and a reasonable accu-
mulation of the results of past labour in this form
also must be held applicable for its special require-
ments. It would be a violent figure of speech to
call capital skilled or unskilled, but not the less the
supply of it must correspond and be adapted to the
quality, as well as to the quantity, of labour to be
mployed, and this very essential distinction must
not be lost sight of in the general use of the term.
17. Nothing can be more absolutely true than
the fact upon which Mr. Mill insists, that there
cannot be more productive labourers employed
than the portion of the products of past labour
allotted to them can feed and supply with the
materials and instruments of production ; and, as
he most justly urges, this fact (self-evident as it
may appear to be) has constantly been forgotten,
and governments have acted, and been urged to
act, as though the mere dictum of authority could
create value without providing for the use of the
means necessary to carry out the work required.
But while keeping this truth fully in mind, it
must not be supposed that either capital or labour
are fixed quantities which cannot be increased or
decreased according to the amount of intelligent
energy brought to bear upon them.
The analogy of the balance-sheet of the accounts
EXCHANGE VALUES : PROPERTY AND CAPITAL. 185
of any industrial concern may fairly be cited in
illustration of the principles involved. On the one
side there is the category of all the assets, and on
the other of all the liabilities, at one particular
point of time: strictly speaking it is a point:
not a day's latitude can be allowed. Everything
to be paid must be set against everything to be
received, as at one period. If any one, either from
folly or fraudulent intention, desires to mystify an
account, he will very likely represent that these
items have been paid, or those received, since the
account was made up, and so make it appear that
the balance is something quite different from that
which is represented. The specific facts alleged
may be true enough, and, if the changes involved
were of sufficient importance, might afford a very
valid reason for restating the acount up to a later
date. And when all assets and all liabilities were
again duly set forth in the same way, as they
existed in correspondence at some other moment
of time, it would be proved that no mere change
or juggle of figures could change the true position
of the affairs involved. If one side of the account
is increased or decreased, so also must be the other,
and every investigation which does not include
every item on both sides is a delusion.
Not the less is the condition of the concern
supposed, changing day by day and month loy
month for better or worse according to the success
or failure of the work actually done within it
So, while we must totally disallow the possibility
CHAP. III.
186
MONEY AND VALUE.
CHAP. Ill,
Only well
directed
labour pro-
ductive.
of a nation, or an individual, increasing its invest-
ments in labour or materials without also increasing
the capital employed, we must as clearly bear in
mind that these factors are constantly varying, and
can be influenced but can only be influenced by
bringing appropriate means to bear directly upon
the progressive work of production. Every year's
account will show some change for better or worse.
Nor is it merely apparently increased accumulation
that is to be regarded, but the soundness and due
proportion of all the related parts of the whole.
This argument is not opposed to the fundamental
doctrines which Mr. Mill has expounded ; but
the desponding views which he has repeatedly
expressed that improvement in the condition of
the wage-earning class could only be secured by
extreme measures for restricting their numbers
and consequently the power of the nation have
tended, as I think, to throw this side of the
question unduly into the shade.
18. Danger is now rather to be apprehended
from quite another quarter, and is to be discerned
in the disposition to regard mere capital as though
it were in some way a self-generating power. There
are many who seem to think that if they intend to
employ their funds productively they have a right
to look for a profitable result either in the shape of
high interest or of profits, almost as a matter of
course, without the exercise of any skill, care,
trouble, or even discrimination, on their own part.
The stolid Transvaal farmer who declared the
EXCHANGE VALUES : PROPERTY AND CAPITAL. 187
banker must be a rogue who offered to give him
something, in the way of interest, for keeping his
money was consistent at all events. He wanted
his cash to be safely put away in a strong box, and
was ready to pay for the service. But the fact
which cannot be too forcibly impressed upon
popular apprehension is, that if interest is to be
paid at all, their capital must be made productive,
and for this object must first be altogether con-
sumed and destroyed for the aid and support of
labour, and in place of it some entirely new
" utility " must be produced. Whether any other
capital may stand between the investor and the
first risks of the undertaking in which he may be
thus, perhaps unconsciously, concerned, is a matter
of comparative detail and of personal arrangement,
but of this nature is the process upon which the
success of all must ultimately depend. These con-
ditions however are popularly ignored or forgotten.
If the enterprise fail, the money lost is presumed to
have been abstracted in some way, and from a
confusion of mind between the money of currency,
which cannot be consumed, nor can itself be pro-
ductive, and money as representing capital which
must be consumed in order to have a chance of
being productive, it is assumed that the " money
must be somewhere, and that some one ought to be
forced to refund it. Out of some such delusion as
this have grown all the scandals which are from time
to time disclosed after every period of speculative
inflation. There is, in short, an effectual demand
CHAP. III.
188
MONEY AND VALUE.
CHAP. III.
The rela-
tive effi-
ciency of
labour the
chief
source of
wealth.
for investments on impossible terms, which is sure
to be met by that mixture of folly, fraud and reck-
lessness which is always ready to pander to and
profit by irrational selfishness. A great deal of
intelligent hard work, as well as passive integrity,
are required so to apply capital, that the results
may satisfy some presently felt want, and thus
make good its claim to be regarded as productive.
At all times it is quite as true to say that the pro-
ductive application of capital is limited by the
quantity of suitably qualified labour, as the con-
verse ; and both sides of the truth must be kept in
mind together.
19. The creation of a new industry does not in
any material sense necessarily call for an equivalent
creation of new capital, for to take the antecedent
conditions at the worst : if surplus labour exist
at all, there must also exist the means of supporting
it. The aggregate stock of commodities is always
largely in excess of immediate wants. Prospective
requirements are readily met by increased future
production, and only a comparatively slight re-
adjustment of the future application of labour will
suffice for the primary support of a greatly extended
industry. The tools and appliances suited for
highly skilled labour are not thus held in reserve,
and indeed for the most part have to be specially
fitted to the varying nature of the work required.
A double operation may thus be required, and the
second employment of labour and capital must wait
the completion of the first. But it is these appli-
EXCHANGE VALUES : PROPERTY AND CAPITAL. 189
ances, which in a well organised industrial commu-
nity are the outcome of capital joined to high
technical skill and science, that render ample pro-
duction possible. They increase the positive effi-
ciency of labour, i.e. the actual difference between
production and necessary consumption. It is this
difference represented by the quantity of labour,
which, being supported by the labour of others
can be applied to other purposes, not the aggre-
gate value of capital employed, which determines
the growth of those forms of wealth, whether per-
manent or transitory, which are the more remote
objects of desire and ambition. Nay, more ; it is
this surplus of energy which is indeed the great
source of power in a community. There is no physi-
cal law of necessity which controls either the pro-
duction or the distribution of things non-essential ;
but much wealth there must be at least potenti-
ally within the limits of a community living
under such conditions, and also a wide range of
choice as to the employment of a large number
of workers. In such cases the wise direction of
this labour, and the just and politic distribution
of its results, are problems of far more pressing
interest than any question as to the further accu-
mulation of capital, or as to the greater or less
aggregate of material " utilities/ 7 bearing exchange
value which may be produced.
20. In the case of a country actually poor, the
difficulty is generally not so much the transmission
of capital as its adjustment and adaptation to the
CHAP. III.
Applica-
tion of
capital to
a poor
country.
190 MONEY AND VALUE.
CHAP. III.
other requisites of production. This is indeed a
work requiring much patience and judgment and, as
has been already shown (I. 25), the mere acquisition
of metallic wealth does not do much to solve the
problem. If natural agents abound capable of
yielding any desired utility, no doubt Capital can
transplant Labour, and all that is required to
support it, bodily to the place where they can bene-
ficially be employed ; but labour, duly qualified
for such enterprises, is generally hard to find and
can ill be spared, and a transfer of this kind has
little in common with the development of the
natural resources of a country, by the labour which,
in the main, it can itself supply, in a way which
shall afford a margin out of which the new capital
employed can be fairly remunerated. The first and
most essential object is to increase the efficiency
of that labour, and so secure the difference just
explained which can be applied to extended pro-
duction either for export in kind, or for the support
of labour locally applied to new purposes. It may
be a very great advantage to have capital, in
other words to have the use of all the appliances
which can at once be turned to good account,
without going through the tedious process of
accumulating the equivalent of them by gradual
savings, but the instruction and technical training
which must be imparted before a new people are
able to make good use of such appliances are just
as helpful and necessary to production as any
material aid which can be afforded. The intro-
EXCHANGE VALUES : PEOPERTY AND CAPITAL. 191
duction of both must be a work of time, and the
kind of appliances required in one state of society
is often ludicrously unsuited to another. What
can be more out of place than steam ploughs or
artificial manures in a district where land is so
much in excess of population that the custom of
letting a large portion lie fallow is, under existing
circumstances, no waste of available resources, but
simply the most economical use of them. So with
the introduction of railways, works of mining or
irrigation, or any other improvements in a foreign
country. The quantity and quality of labour which
it can afford, how far that has previously been used
to, or organised for, any similar work ; the wealth
and means of circulating it which may already
exist ; the effect which any artificial aggregation
of labour in any one district may have on the
price of provisions, and many other such con-
siderations have all to be taken fully into account
with reference to any scheme of construction.
While as to the ultimate success of the under-
taking; the quantity of traffic which any district
can afford to use, the population which may be
able to take new land into cultivation, the extent
to which custom or apathy may operate against
changes however apparently beneficial, will all have
their effect on the returns to be anticipated from
the completed work. Experience in most settled
countries where there is no violent interruption to
the efforts of industry, warrants strong confidence
in their general capacity for progressive develop-
CHAP. Hi.
192 MONEY AND VALUE.
CHAP. Ill
Commer-
cial use of
the term
"capital.'
ment, but quite the reverse as regards any advan-
tage to be derived merely from profuse expenditure.
The high rate of interest in many new countries
does not represent the insecurity of property so
much as the risk of failure arising from the diffi-
culty of adapting the new capital to the existing
agencies which have to be modified to carry out
the work designed.
It is needless to enlarge further upon such
difficulties which must be the subject of careful
and special investigation wherever capital has to
be applied. Enough I trust has been said to
indicate something of the nature and the limits
of the uses which it subserves.
21. The word capital is used in a somewhat
different sense in commerce, rather with reference
to the very general conception of " money " which
will now come under consideration. The balance
of the estimated value of a trader's assets after
? ull discharge of his liabilities is, for instance, said
to be his capital. It thus indicates in very general
terms that which is his own, as distinguished from
that for which he is accountable to others. Or it
may be opposed to interest or income, as the capital
r alue of the funds or of an estate : the right to
uch income being exchangeable for the amount of
capital expressed. The term may often be some-
what loosely used, yet will still be found to signify
ultimately a purchasing power, which, though
xpressed in the terms of current money, does
not imply the substantive use of either bullion,
EXCHANGE VALUES : PROPERTY AND CAPITAL. 193
coin, or notes, but represents rather means which
actually are, or potentially might be, employed,
either in supporting labour, or purchasing the
products of labour for completion or for final
distribution and resale.
22. Before advancing further in the question, it
may be well to summarize the conclusions just
arrived at, without however following closely the
order in which the several points have been raised.
(1). A certain stock of necessaries must be con-
tinuously maintained in every country to support
life while the work of reproduction is being carried
on. It may either have been produced directly
within its own borders, or procured by traffic with
other countries. Thus, cattle may be exchanged
for corn, though it does not follow, merely from
this fact, that more of either is raised by the whole
labour of the producers than will be required for
consumption within this period. Population is of
course limited by the extent of this supply, which
supports alike those who do and can, and those
who do not or cannot, contribute to it. This stock
is capital in its primary sense, and that portion of
it which maintains those engaged in the work of
production is distinguished as "productive."
(2). Under favourable conditions, natural or
acquired, the production of all the stock thus
required will be largely in excess of the consump-
tion of those engaged in this special work. Other
labourers, therefore, supported by this surplus, can
CHAP. III.
Summary
of the
foregoing
proposi-
tions.
194 MONEY AND VALUE.
CHAP. III.
only be usefully engaged in supplying other com-
modities (or rendering other services) than those
which are required to satisfy such primary wants.
Equal "quantities" of labour must therefore be held
to give equal value to all products for purposes of
exchange the one against the other ; for the " natural
agents " upon which all alike are employed are not
the exclusive property of any, and all are engaged
in supplying in the aggregate those things or
services which are best fitted adequately to satisfy
existing demand. As no physical law of necessity
governs the application of the labour thus supported,
it may be diverted to any objects according to the
state of opinion which governs the effectual choice
of society.
(3). It may be further observed that no precise
general definition can be given in this context of
the term " necessaries ;" but physiology and practical
experience clearly show that the minimum required
merely to support the continuity of life is not the
minimum cost of production, for, within certain
limits, the " quantity " of labour which can be
yielded increases in a far greater ratio than the
quantity of products consumed. As a question of
current exchange value, the amount of necessaries
required to remunerate labourers is just that pro-
portion of the aggregate production for which their
demand can be made effectual ; but a well-nurtured
labourer can more fully earn his wages than one
who is ill-nurtured.
(4). The efficiency of labour is greatly increased
EXCHANGE VALUES : PROPEKTY AND CAPITAL. 195
by its specialization, which implies in an extended
degree the co-operation and interdependence of all
who are directly or indirectly engaged in the work
of production. Labour is also aided by various
appliances, and skilled labour, qua skilled, must be
supported by capital, including such adjuncts as
are necessary to give effect to its special dexterity ;
these being in fact the products of previously
applied capital and labour. Capital also may be
invested in factories, machinery, and other pro-
ductive property by means of which labour, both
skilled and unskilled, may be more efficiently
employed, and the ultimate effect of these re-
doubled applications of capital and labour is
largely to augment production as compared with
necessary consumption ; and, consequently, the
surplus of capital and labour which can be
optionally applied.
(5). This surplus, if applied to the construction
of objects of durable value in use, increases the
wealth of a country. It may equally be applied
in the production of perishable superfluities of no
real value in use, or to services which do not yield
any results in material form, but in all cases
value in exchange depends equally upon the cost
which may be required, directly or indirectly, to
maintain those who are thus admitted for the time
being within the circle of recognised industry.
(6). Fresh capital must inevitably be made pro-
ductive in order to include other and new labourers
within this circle of independent co-operation, but
o 2
CHAP. III.
196 MONEY AND VALUE.
CHAP. III.
as, materially speaking, this capital is for the most
part already in existence (or men could not have
been supported at all) the work required, especially
in any wealthy country, is rather that of voluntary
redistribution, by means of improved industrial
organisation, than of any new production of capital
in its primary sense.
(7). The cost of all existing property may be
resolved ultimately into the value of the com-
modities produced and consumed in times past.
The exchange value of that portion which may be
distinguished as productive is based; (a) on an
estimate of the revenue which can be afforded by
it, i.e., by the difference between future income
and future necessary expenditure, and (b) upon
the amount of accumulations of capital at the
present time of interchange which the owners
possess and are willing to give for the prospective
advantages to be derived from such property.
As regards the first (a) there will be deducted
from the prime cost, the outlay for all labour
originally wasted or misapplied, or applied to
objects the utility of which has been superseded
and passed away : and added, any increase in
the estimated cost of production in the future as
compared with the past. The current value of all
property and commodities is estimated subject to
both these considerations.
(8). As far as the consumption for the support
of labour is less than the remuneration (whether
earned as wages, working profit, or under any other
EXCHANGE VALUES : PKOPERTY AND CAPITAL. 197
name) accorded to it, there .will have been anj CHAP. m.
accumulation of capital within the limits of the |
cost of any specific product. This most essential
feature of social economy must constantly be kept
in mind, though for exposition as well as for
practical purposes, it will probably be more easy
to most minds to conceive of these as separate
accounts to be set the one against the other in
estimating the accretions of national capital, rather
than to attempt to grasp the innumerable ex-
pedients of industrial activity in one common
account. The same general principles apply
throughout.
(9). The exchange value of possessions not yield-
ing any periodical increase to the owner, rests
entirely upon the estimate formed of the advan-
tages of all kinds, whether mental, moral, or
physical, which the possessor may derive from
keeping them, rather than any other advantages
he could get by parting with them. But properties
of this description generally can reasonably be re-
garded only for the uses they are fitted to subserve.
Thus, a man who has diamonds or pictures or
unique porcelain is, so far, altogether outside the
pale of social industry, either as a consumer or a
producer. It may perhaps be said that an economic
advantage of such things is that those who buy
them do withdraw completely from all interest in
or control over capital or labour in favour of those
who may be better able to utilise them : a step
which few would be willing to take were it wholly
198 MONEY AND VALUE.
CHAP. III.
irreversible, which it is not as long as such things
maintain an exchange value from the demand of
others who are willing to accept them under the
same conditions.
(10). The current exchange value, and more
especially the price, of all property and commodi-
ties is in all cases essentially relative, and is worked
out by the equations of demand and supply as
severally adjusted at any one time. This demand
and supply depends not only on the conditions
referred to, but also on changes of opinion which
may lead to exchanges on unequal terms between
one kind of possession and another.
(11). The current exchange value of all these
various objects of desire : property, productive and
unproductive, and securities based upon them ;
commodities fitted for use or in various stages of
completion : merchandize in store or in transit,
services of all kinds, are all expressed in the
common terms of money, and although the use
of it in any specific form is very rarely required,
all the multifarious and diversely-related trans-
actions in them are made on the faith reposed in
the integrity of our golden unit of exchange value.
The fact that the great operations of industry can
be thus generally described without direct refer-
ence to it, serves to show how little it can be
affected by local transfers, however great may be
the amount of their value, which are within the
ordinary range of social and industrial intercourse.
Gold serves as a common measure of value for all,
EXCHANGE VALUES : PROPERTY AND CAPITAL. 199
while its own value depends on a far wider average
of independently working causes. It escapes and
is exempt from the one-sided and interested
influences to which the objects which are cal-
culated to gratify the ordinary desires of man-
kind are exposed. Its own use may be best
understood by the analogy of any other system
of weights and measures. It is in itself eminently
trustworthy, but just as any conceivable absurdity
in estimates of length or capacity may be precisely
expressed in the most exact terms, or rashly and
falsely expressed in terms which are themselves
accurate, so it may be with the sterling or any
other monetary unit.
In proceeding to treat of the means by which
the current work of industrial production is carried
on, we shall have specially to deal not with money
itself, but with estimates expressed in the terms of
money.
CHAP. III.
CHAP. IV.
Credit : a
further
generalisa-
tion of
capital.
CHAPTER IV.
(Value.)
CONDITIONAL OWNERSHIP : CREDIT AND BANKING.
1. THE consideration of fixed and realised pro-
perty of all kinds may now for a time be laid aside,
while attention is directed to those processes by
which the work of current production is continu-
ously carried on, and the means by which the
necessary transfers are effected from one hand to
another of all that is required by those who are
engaged together in work, which has not only to
be subdivided in an infinite variety of ways, but
the results also have to be brought together to suit
an infinite variety of wants under circumstances
which in a greater or less degree are constantly
changing. Not only must every one's section of
work be expressed in terms common to all, but
meantime, while engaged upon it, each one re-
quires the uncontrolled possession of the materials
which he has to use. But it is not at all necessary
that he should have the unqualified ownership of
them : on the contrary, a very little reflection will
show that such a condition would work very un-
equally indeed. Thus : take for example the first
CONDITIONAL OWNERSHIP : CREDIT ; BANKING.
201
process required on iron which has cost little or
nothing, and compare it with the latter work done
on fine steel on which a great deal has been already
expended. The labour applied in either case
might well be worth equal remuneration, but neces-
sarily the inherent cost of the material is widely
different. If therefore each kind of work had to be
done only by those who could afford to own the
material, the latter section could only be under-
taken by those who were comparatively rich.
There is, in fact, no natural relation between the
present capacity of any particular workman and
past accumulations of capital invested in the
materials on which he works. Thus capital, which
includes in a very general term all that is required
to support industry in every form, must itself be
again generalised and distributed, so that it may
be brought into appropriate connection with labour.
This further generalisation is termed credit, and
materially speaking there is no difference whatever
between the one and the other.
To use credit is to use capital in a way which
will satisfy the needs of a highly-organised system
of industry and requires a largely extended use of
"money," not in the form of actual coin or notes
representing coin, but simply as a purchasing power
on a definitely fixed scale, in a sense even more
abstract than any which has yet -been explained.
And for this reason. Loans can no doubt be made
of commodities : there is no reason whatever why
they should not be so made when it suits the
CHAP. IV.
MONEY AND VALUE.
CHAP. IV.
convenience of those concerned, but loans in money
are generally preferred, as affording the borrower
the wider range of choice in selecting that which
he may require. He can hire or buy just as much
as he wants of labour or of rough material, or
materials upon which much work has been already
bestowed : but the product is something completed,
or in a more or less forward state towards com-
pletion, and is not by any means the same as
those things which have been required for its
production. That which has been directly or in-
directly borrowed is either consumed altogether,
or so completely altered in form that a return in
kind is out of the question. Very little use could
be made of credit without a basis of sound money
in which to express its conditions in general
terms.
Even to take corn as the article of all others in
most general consumption ; many things else are
required by the cultivator, especially if he would
make the best use of the land upon which he is
working, and though a rent in kind might be paid
ultimately to a landlord, quantities of corn bear
no assignable proportion to the specific wants of
those who have to be recompensed for the various
commodities supplied to a skilful farmer. Further,
even in this case, though there may be no difference
in the material form of one year's corn and that
of the year which has preceded it, the production
must still be regarded as constantly progressive :
each succeeding month must bring it nearer to the
CONDITIONAL OWNERSHIP : CREDIT ; BANKING.
203
time when it must fulfil the final purpose for which
it is raised.
So also as regards merchandise in the hands of
an importer or dealer. Its form may not be
changed, but the object is, not to return it back
to the owner or lender, but to pass it on for further
use, or for consumption. The nearer we get to
the consumer, the more advanced is the stage of the
work which has been Completed, and the greater
the labour and cost which has been expended.
2. Industrial "money" represents alike all that
is required to sustain labour in full beneficial
activity, and all the products which result from it
to supply the ever recurring wants of mankind :
and though it has been shown that there can be no
usufruct in gold or silver or the representatives of
either as money in mere material form, it by no
means follows that there cannot be such usufruct
of that which conveys the power of purchasing,
ready to hand, all that is required to aid and
support the continuous operations of production.
And this will be more clearly seen as we consider
further not only the form but the nature of the
various obligations expressed in the terms of money.
We have in fact to treat of loans, and the money
market in this context is the market for loans.
There are two juridical terms which so well
express the conditions under which credit is
accorded, that I will venture to introduce them
here. Strictly speaking, they refer rather to the
compass than to the subject of rights and the
CHAP. IV.
Nature of
relative
rights
arising
through
credit.
Jusinrem.
Jus in per -
sonam.
204
MONEY AND VALUE.
CHAP. IV.
obligations corresponding with them ; but I trust
I shall not be deemed too lax in interpreting jus
in rem as a right in something, as against all
the world ; and jus in personam as a right to
something, as against some peculiar person or
persons. These answer to the most essential dis-
tinction between the rights of the borrower and
lender respectively. Specific commodities must of
course be definitely owned by some person or
persons. The ownership of them may even be
conveyed by any suitable document. Thus the
" Bill of Lading " signed by the captain of a vessel
passes by endorsement from hand to hand, and
conveys the right of ownership to the specific goods
mentioned in it. The Keceipt or " Warrant " of a
warehouse keeper 1 represents goods deposited with
him for safe custody and conveys the same right.
But these same goods may be, and very generally
are, directly or indirectly, also the basis of a Bill
of exchange or a Promissory Note.
The right to goods in a man's own possession, or
represented by such documents as a bill of lading
1 This, though only established in law by a very recent decision
(Merchants' Banking Company v. Bessemer Steel Company), is entirely
according to the reasonable exigencies required by the division of labour
in commerce. The mere safe custody of goods can be more efficiently
provided for by those who lay themselves out for this kind of business
than by owners generally. The duty of warehousemen as such, is
simply to deliver such goods to the holder of the warrant, and questions
of ownership can most conveniently and safely be dealt with by those
who hold that document. Further, to illustrate the position, it may
be added that should the holder become bankrupt, the warrant vests in
whomsoever represents his general estate, and is held as an asset for
the benefit of all, as against any special creditor.
CONDITIONAL OWNERSHIP : CREDIT ; BANKING. 205
or dock warrant, is in rem. The right given by
a bill of exchange or by a promissory note is in
personam, and avails only against the acceptor or
other persons who are parties to the instrument :
any direct right to the goods against which it may
have been drawn is not conveyed by any such
documents. It is very much the same with an
advance in cash made by a banker for any fixed
time. The lender may know generally what the
borrower wants to buy for the purposes of his trade,
but his only claim is against his debtor personally
for a specified sum of money to be paid hereafter.
Eights of both kinds may be concurrently held in
respect of the same property, but they are, never-
theless, essentially distinct.
What is the meaning and object of this duplica-
tion of instruments, or rather of terms of concur-
rent rights affecting the same commodities ? Simply
this. The person who has work to do with them
has the uncontrolled use of them, either for the
purpose of turning them into other utilities, or for
supporting productive labour. He holds them, or
the results derived from them, against all the
world, to use according to his own discretion,
without let or hindrance or interference. But this
credit is only accorded on the faith that the
commodities, the use of which has been obtained
directly from the lender or by the use of the
lender's money, are being brought on to a stage of
advanced valuej so that when the acceptance or
loan becomes due in course of time, the promised
CHAP. IV.
206 MONEY AND VALUE.
CHAP. IV.
*'*' purchasing power " will have been earned and ob-
tained. A bill or note, therefore, does not during its
currency imply any purchasing power as at present
existing : it is only the promise of those who are
parties to it that such a power will be conveyed at
some fixed future time : the presumption being that
they have not at the time any such power to convey.
So far a man with only moderate means of his
own, but in good reputation as not only passively
honest, but capable in the work he undertakes to
do, is fairly placed on a level as a producer with
his richer competitors. And it may be said of this
generalisation of capital, as credit, as has been
already remarked of the fundamental laws which
govern value, that it is essential to any state of
society which would rise much above the range of
a barbaric isolation of individual labour. It is
neither the cause nor the effect of the division of
classes into rich and poor, though no doubt those
who have only enough for their own immediate
wants cannot lend the surplus which they have not
to others. But small savings are equally available
with great accumulations to make up the aggregate
of productive capital required. There is, for ex-
ample, no reason whatever why the 70,000,OOOZ.
now in the savings banks should not be directly
employed in supporting productive undertakings,
except what is probably the fact that these
reserves are better and more safely placed else-
where, and other resources are more conveniently
available for the uses of industrial enterprise.
CONDITIONAL OWNERSHIP : CREDIT ; BANKING. 207
3. The nature of credit may, as has just been
remarked, be most readily apprehended by con-
sidering money in the present context as simply an
abstract term, implying a purchasing power. It is
this power which is transferred, and which has to
be returned. Uses, rather than the accidental
materials used, have to be considered in the rela-
tions between those who give or take credit, and it
is on this ground that any question between them
must be discussed. Now use implies risk which
cannot by any contrivance be entirely eliminated
from mundane affairs, but which differs very greatly
in degree in various undertakings, and the sound
morality of credit depends upon the way in which
these risks are understood and fairly avowed as
between man and man. The analogies of stealing,
where the thief takes away that which he had
never any right to touch at all, do not apply to
cases where money is given in order that it may be
spent, i.e., employed. To obtain credit under false
pretences, or to abuse it after it has been obtained,
may involve graver and baser criminality, but it is
no more to be described as theft than as arson.
There may, indeed, be cases where a loan has
been obtained so palpably under false pretences
that an obvious remedy is to get back the money,
or that which has been bought with it, as far as it
can be identified or "ear-marked." But this is
rarely possible, or, where possible, may only give
an unfair preference to one lender at the expense
of others, who, under quite similar circumstances,
CHAP. IV.
Rights and
duties
associated
with loans.
208 MONEY AND VALUE.
CHAP. IV.
Past.
have trusted to the borrower's personal obligation.
The rights of all alike are in personam, not in rem,
and only further complications of wrong can arise
from neglecting this obvious distinction. Again,
the old traditions of our common law righteously
forbid that any man charged with a crime should
be required to give evidence which may criminate
himself ; but no such maxim can be so strained as
to excuse any one who has failed to meet his per-
sonal obligations from the duty of rendering, to a
competent tribunal, full and explicit accounts as
to the uses to which he has applied the power of
money intrusted to him. The higher form of trust
should imply a higher order of responsibility.
If a man be reckless or negligent in the use of
such borrowed money, he is guilty of a very grave
offence ; far more so if he misrepresent the purposes
for which such money is required. For the lender
is thus made to participate in risks of a different
kind from those which he was willing to incur, and
upon an estimate of which the terms of his re-
muneration were agreed upon. The wrong done is
of the same kind as though a policy of insurance
were obtained upon a ship by false accounts as to
its destination or seaworthiness. The culpability is
none the less because it might escape from all
dangers and realise the great profits which are often
associated with great risks, without actual injury
to any one. But to incur risks is not in itself
culpable. On the contrary, some degree of uncer-
tainty waits on all enterprise which depends on
CONDITIONAL OWNERSHIP : CREDIT ; BANKING. 209
future conditions which never can be perfectly
anticipated. The very meaning of the word ex-
periment implies that danger which arises from a
want of knowledge of the results which will follow
any particular course of action, and such trials or
ventures in commerce are not only useful, but may
even be meritorious. If merchants and manu-
facturers waited for absolute certainty, they would
ignore their function in the general economy of life.
If dealers in grain waited for an assured scarcity,
the risk of famine would be shifted from them to
the society which they exist to serve. Hence it is
that the graver questions of right and wrong, as
regards credit, turn not upon the risks openly in-
curred, but upon the candour with which the nature
of these risks has been disclosed. Nor can it be
assumed, as a matter of course, that rashness, want
of forethought or discrimination, are the faults of
the borrower and not of the lender. Thus, the
creditors (or still less the shareholders) of any
company formed to extract moonbeams from cucum-
bers have no ground, primd facie, to charge those
with wrong -doing who have failed in the attempt
to carry out the avowed object of the association,
though no doubt if they have not themselves shared
in the risks, a common sense of the fitness of things
will draw its own inferences from a prudence so free
from all taint of folly.
Moreover the object of credit is to obtain a
division of function with which the division of
remuneration may suitably be made to correspond.
CHAP. IV.
210 MONEY AND VALUE.
CHAP. IT.
The reasonable desire of those who accept loans is
to secure to themselves in a larger degree all the
more or less of gain which may be derived from
their own skill and experience in the management
of some special kind of industrial work. Those
who grant loans forego this advantage, but are
assured of a more certain income. The " material
guarantee " for this assurance is the capital actually
owned by the borrower himself, and any wilful mis-
representation on this point, however indirectly
made, is essentially fraudulent. But no wrong is done
if any one choose to lend his money to another,
trusting solely to the guarantee of his competence
and discretion, or the interest he may have in the
good will of any productive undertaking, though
no one is within the limits of reason in urging that
support ought to be accorded to him on any such
terms.
Eeckless adventures are not encouraged by such
arrangements, if made with any reasonable discre-
tion. On the contrary, waste and ruin result rather
from a blind confidence in the alleged guarantee of
capital without any regard to the uses to which it
may be applied. Hence it is that we see period-
ically great commercial failures. The books often
exhibit at the first a superabundance of the wealth
to which every one had trusted ; further investiga-
tion shows that on the most lenient assumption,
none of those connected with the undertaking had
any conception whatever of the real nature and
extent of their obligations ; and the final result
CONDITIONAL OWNERSHIP : CREDIT ; BANKING.
211
CHAP. IV.
proves that the capital which should have been
productive, has on all sides, and long ago, been
utterly misapplied and wasted.
Capital and credit are, materially speaking, the
same. The purchasing power implied by the use
of either term is the same. The division is one
only of ownership, implying a corresponding divi-
sion of function, and while nothing can be gained
by unduly confounding the individual rights and
responsibilities of the lender and the user, all their
broader and more permanent interests must be
regarded as identical. The result under a fairly
conducted system of free competition is the better
adjustment of the work to be done to the various
capacities of those engaged in it, and a consequent
positive economy of labour for the benefit of the
community served, especially when the casually
adverse claims of those concerned are not suffered
to obscure the true sentiment of co-operation.
4. The uncertain sense in which the term profit \ The profits
is used is at the bottom of much of the confusion ductive
of thought which prevails on many social problems.
At one time it was commonly held that wages were
paid out of profits, a notion which no doubt arose
from such a case as that of a dealer who bought
goods wholesale, and sold them by retail at ad-
vanced prices : this difference he might call profit,
or, more strictly, gross profit, and out of it wages
and other charges would have to be paid, the bal- j
ance only being the actual net profit which the
p 2
212
MONEY AND VALUE.
CHAP. IV.
dealer could afford to spend upon himself. Mr.
Mill also, having divided the sum of products into
wages and (gross) profits, shows that one portion
annot be increased without a corresponding re-
duction in the other. He may have had very good
reason to insist upon so self-evident a fact, for that
3 and 2 could be made into more than 5 by some
kilful juggle of legislation, was one of the profound
fallacies of bygone " financial " theories which it
was very hard to kill. But it is to be regretted that
the general drift of his writings tended so much to
ncourage the view that it was pre-eminently desir-
able that the special profits of enterprise should be
generally shared by those earning wages leaving
out of view eDtirely the consideration that there
should be a certain correlation between the nature
of the work done and the mode in which it is re-
compensed. There is no difference of opinion as
to the principle that all workers should be able
by a reasonable exercise of industry and self-control
to save, and thus accumulate capital ; in this most
important sense all should share in the profits of
production. But wages and in this generic term
must be included "pay/' salaries, and all other
forms of fixed remuneration may be disproportion-
ately too high or too low. Profits represent alike
the very scanty earnings of the struggling shop-
keeper and manufacturer, and the exceptional gains,
usually associated with inordinate risks, of the
fortunate speculator.
Nor, cceteris paribus, does any one form of re-
CONDITIONAL OWNERSHIP : CREDIT ; BANKING. 213
numeration imply more independence than the CHAP. iv.
other. The bargain driven for wages or for profits
may be unduly in favour of either. Nor should too
much weight be given to the argument that better
work is done for profits than for wages. The same
lax morality which gives too little work for fixed
pay, will soon find out means of getting too much
pay for an undefined amount or quality of work.
What is required is rather that a just and discrimi-
nating criticism should supersede the mere blind
blundering instinct of hard bargain- driving, which
is the popular substitute for economic management.
But we are not concerned in following out this
side of the question. It is enough to say that the
mode of remuneration governs neither its relative
amount nor the quantity or quality of service
rendered for it.
5. The connection between the nature of the
work done and the recompense earned for it, may
be most directly shown by glancing back at the
necessary order in which production is accom- ment."
plished. Wages, whether high or low, are ad-
vanced out of past accumulations, and, speaking
generally, though the wage- earner may be uncertain
whether he gets work or not, he does not, having
once obtained it, run any further risk as to the
ultimate success of the undertaking upon which he
is engaged ; and fittingly so. For specific mecha-
nical work, or even that of subordinate superin-
tendence, may ultimately lead to gain or loss quite
independent of the skill and fidelity with which
Profits
specially
associated
with risks
of final
214 MONEY AND VALUE.
CHAP. IV.
this special work or service is performed. It has
nothing directly to do with the risk of loss from mis-
adaptation of supply to demand, which may arise
either from error in judgment on the part of the
employer, or even from causes impossible for him to
foresee and provide against. Work of this descrip-
tion is a separate study altogether, requiring
capacity of a different kind, and constant attention
to changing conditions in a very different range of
observation. Whether a further payment may be
made to wage- earners, dependent on results, as a
reward for and an inducement to good work is a
point which does not affect the present argument.
But wages as a rule are and must be paid imme-
diately. The final results are completed, and their
exchange value can only be tested, at some com-
paratively remote period. Equally if a dealer buys
merchandise at home or abroad, he arranges for the
payment on definite conditions at once, and the
seller may be assumed to have no further risk in
the matter. He has supplied something presumably
fitted for use, but how far it will ultimately be
wanted for use does not directly concern him. That
individual or associated labourers should undertake
such ventures if they desire and are in a position
to do so is most desirable. As far as such " co<-
operative" associations tend to make wage-earners
better acquainted with some of the higher questions
connected with the work on which they are engaged,
they are worthy of all possible support, consistent
with their maintaining an independent position.
CONDITIONAL OWNERSHIP : CREDIT ; BANKING. 215
But the special work, the recompense, and the re- 1 CHAP. iv.
sponsibility, must go together. Of course the
expectation is that average profits will more than
cover all risks, but this gain has to be earned by
successful adaptation, in fact by saving the waste
from misapplied labour which no perfection of in-
dividual mechanical skill could avoid. From a
point of view which may fairly be referred to as
clearly showing one side of a truth, profits are
rather saved out of, than added to, the cost of pro-
duction. No one, for example, would pay a master
builder if the various artificers could, without undue
waste, put together the parts of a house every bit
of which is the work of their own hands without
his aid in adapting their several work to make up
the concrete whole, the value of which depends on
its fitness for present use and convenience. He
has indeed to deal with values and uses, or what
his customers may be pleased to consider uses,
rather than with any special materials.
There is inevitably an uncertain balance of excess
or deficiency at the end of every work of reproduc-
tion, and it is this resulting risk which is inevitably
associated with profit. In banking, which has been
reduced almost to a science, the highly skilled head
work required is often paid for by salaries (i.e.
wages), but even in this case the small proportion
more or less of profits, falls to those who undertake
this ultimate risk, and would indeed be responsible
in case of disaster. Profit and risk are so in-
separably connected, that " profit and loss " is the
216
MONEY AND VALUE.
CHAP. IV.
Interest
considered
as a charge
on Indus-
try.
appropriate heading of every trader's account which
records the success or failure of his several trans-
actions. Indeed, when interest and the wages of
superintendence and indemnity against loss are pro-
vided for, the final profit may well be termed the
remuneration for risk ; the risk being of such a
kind as, to a greater or less degree, but not alto-
gether, can be provided against by due care, skill,
forethought, and good management.
If the " adventurer " accepts a loan, he guaran-
tees the lender against loss to the utmost of his
resources. On both sides therefore he bears the
first brunt of risk, and it stands to reason that his
directions as to the ordering of the labour em-
ployed must be supreme within the limits of the
undertaking for which he is thus finally respon-
sible. It does not follow that his remuneration
should be higher than that of others working with
him, but his special function is to direct and adjust,
and, in the interest of all concerned, he should have
fair scope for the exercise of it.
6. Interest apart from such risks has well
been termed the remuneration of abstinence. Capi-
talists, large and small, instead of spending money
on present enjoyment have accumulated, and apply
it to the support of productive labourers. Eegard-
ing it further as a charge which may accrue
separately to individuals who merely lend to others,
not only past abstinence is implied, but also that
the lenders further abstain from exercising their
undoubted right to expend their funds in purchas-
CONDITIONAL OWNERSHIP : CREDIT ; BANKING. 217
ing productive property, or supporting productive
labourers directly for their own benefit. This
lenders could certainly do, were they so minded,
and that without raising prices against themselves.
For the value of commodities and the rate of wages
also is determined by the total capital made avail-
able to pay for them : this aggregate can in no way
be altered by any mere change in the way the
division is to be made of the surplus production
hereafter to be derived from the outlay of that
capital. Whether A spend his own capital and
also that of B, or whether A and B each spend
their respective capitals separately, makes no
difference whatever in the aggregate demand or
in the aggregate supply. The same as to profits-
there would be, cceteris paribus, precisely the same
amount earned, only instead of a division into gross
profits with a sub -division for interest, there would
be a single appropriation of profits accruing in
stricter proportion to the amounts of capital
severally owned. So even if interest were altogether
abolished it does not necessarily follow that the
cost of production would be either increased or
diminished. The chief difference would be that
those who with small means are now in the inde-
pendent position of employers of capital would have
to take a subordinate one as employed by those
who own it. Any further difference could only
arise from the greater or less practical efficiency
of the one mode of organisation rather than the
other.
CHAP. IV.
218
MONEY AND VALUE.
CHAP. IV.
The element of risk, however, cannot be wholly
eliminated in practice, and is therefore a fair basis
for a compensating charge. The gross rate of
interest will thus vary according to the nature
of the employment and the sufficiency of the
" adventurer's " guarantee ; but whereas the dif-
ference which forms the estimated indemnity
required to provide against the first risks will be
comparatively large, a far smaller proportion only
may be required to recompense the lender for the
remoter risks which he incurs. 1
1 I enter more specially into the merits of this question as the
charge has been attacked as a wrong and an injury to industry, and
though it is one which will certainly be maintained in virtue of its
actual utility and fairness, still the unhappy notion which is not so
uncommon as might be supposed that though practically necessary,
it is not strictly justifiable, is one which, as far as it goes, cannot but
have a deteriorating effect.
The most specious objection to the charge of interest is that the re-
ceiver takes no share of risk, but this point is entirely within the range
of equitable arrangement. It is in simple fact commuted with mutual
advantage. If a lender were to share the more or less of profit, it
stands to reason that he would also have to retain some right of
detailed supervision over the use made of his funds. If any one is
concerned in details he must be deferred to in details, and would be
apt to insist upon it. It works far better to draw a definite line which
excludes all such irritating and troublesome matters. Moreover, if a
man is fit for his position at all, he gets on far better when he has the
weight of his own work fairly in his own hands. Men's minds are
cramped and dwarfed by constant supervision in detail. Even an
artificer doing comparatively exact work will not stand being Over-
looked in such a way. His word is, " I will abide by my results, but
I will do my own work my own way, or I will not and cannot be re-
sponsible for it." A love of gain is no doubt a powerful stimulus to
exertion, but too much has been made of this motive, and it is more-
over one of those which, unbridled, are so apt to o'erleap their own
intention. The sense of freedom combined with a sense of a definite
sense of responsibility for the use of it, are the most favourable conditions
CONDITIONAL OWNERSHIP : CREDIT ; BANKING.
219
One casual advantage of this division of function
and remuneration which interest subserves is the
individual security which can be attained by means
for drawing out the best energies, especially of an enterprising race
like our own.
In the commercial association of borrower and lender there is no
place for the idea of favour, the accommodation is mutual ; but the
system is certainly to the advantage of the less wealthy trader, who, if
he is at the pains to manage his affairs with discretion, and does not
seek to incur more risks than he is able to meet, has little difficulty in
obtaining at once as much money as he can employ on terms which, in
the very nature of things, must be within the limits of the average
profits of the business on which indeed it depends. The reason for a
want of success must either be in himself, or in the fact that there are
more already engaged in the particular branch of industry into which he
seeks to enter than the wants of society can support. In any case if
he cannot satisfy existing terms, still less could he satisfy those which
would result from such a change as that above referred to. The alter-
native of confining the direct uses of capital strictly to those who own
it is incompatible with the manifold wants of enterprise in these, or
indeed in any other, times.
In the days when slavery was a recognised institution the wealthy
might no doubt employ their means through the agency- of those
who, by reason of their inferior status, could not openly put forward
any claim for recompense other than their master's favour chose to
accord to them. There is little reason to assume that this servile
service was more honestly performed than the obligations arising under
the more independent forms of co-operation ; but the abolition of
slavery, and of the ideas connected with it, were assuredly favourable
to the development of a system under which reasonable interest is paid
for loans made in support of independent enterprise.
On the ground of equal dealing, it is hard to see how any one could
suppose that a return of the principal lent was a fair adjustment be-
tween the lender and the borrower of money to be applied to pro-
ductive uses. The advantages of having the command of products
ready to hand for immediate use, instead of going through the tedious
process of saving the equivalent of them are so palpable : the bor-
rower evidently would have so much the best of the bargain, that
some share in this advantage seems due in common honesty, though
no doubt the interest on loans, just like the exchange value of every-
thing else, depends upon the actual use that can be found for them.
A farmer, manufacturer, or shopkeeper reasonably expects to live on
CHAP. IV,
MONEY AND VALUE.
CHAP. IV.
of it. A worker in any one branch of industry
especially if engaged in some arduous enterprise on
which his best energies may be concentrated, need
not depend solely upon it, but may devote his
savings to support other selected undertakings
without incurring the first brunt of the risks and
responsibilities attached to them. For the reason
thus suggested, money at interest in the Savings
Banks is probably better placed there than em-
ployed in directly carrying out productive work.
A reserve to fall back upon in case of sickness or
old age is thus safely preserved.
Holders of " money " do incur one definite risk ;
no one is obliged to take or to pay them for their
money. They have no direct hold on productive
undertakings, but low rates of interest induce men
to invest in real property or to promote new indus-
trial enterprizes ; high interest to aid those already
in existence. It will generally be most closely in
accordance with the actual conditions of industry
in such a country as this, if the questions of risk,
interest, and ultimate " net " profit are considered
together.
Popular instincts are fully alive to the one valid
objection to interest, viz., that a fixed interminable
charge of the kind may outlast all benefit derived
the profits of his stock, and at least to keep it up also to its original
value. The service of money is not the less real because it is rendered
in more abstract form. The owners of it in this sense hold com-
modities generally not for their own enjoyment, but for the use of
workers whose labours are thus rendered more easy and more
efficient.
CONDITIONAL OWNERSHIP : CREDIT ; BANKING. 221
from the original outlay. Hence it is felt that the
burden of the National Debt should not be sent
down to posterity in its entirety. In form, termin-
able annuities would more suitably represent the
limits within which the weight of expenditure to
meet special emergencies should be distributed, but
this does not suit the varied exigencies of bor-
rowers and lenders so well as the expedient of a
" sinking fund " by which the stock of those whom
it may suit to be in the market to sell, can be
bought up and extinguished. Practically, more-
over, new difficulties arise which would warrant new
loans, and it would be useless actually to buy stock
with one hand to reduce the debt, while selling it
with the other to meet present emergencies ;
though this farce was at one time gone through
with much solemnity and expense. Money is in
fact so general an expression of value that no such
proceeding is requisite, but in order to keep the
aggregate of debt within a compass representing a
burden which may fairly be sent down to posterity,
every timely opportunity must be taken to keep
down its proportions. The benefits w^hich may be
derived from such expenditure are essentially gene-
ral. So also is the consequent charge on the
national resources, and it is needless to point out
the immense advantage of unimpeached credit
which enables a State to distribute its burdens in a
way which even in times of the greatest emergency
makes the strain upon its income comparatively
easy to bear.
CHAP. IV.
222
MONEY AND VALUE.
CRAP. IV.
The dis-
tinctive
functions
of bankers.
In commerce no such question as this can arise.
The transactions are short and consecutive, though
this fact may not be apparent to one who employs
his money through the agency of a banker ; never-
theless the continuous interest received is in fact
the result of many successive operations.
Into the question of loans not made in support
of productive industry I do not intend to enter.
Loans without interest are sometimes the most
effectual mode of rendering aid to those who are
striving to win their way back into full indepen-
dence but no general law of value can or, in the
nature of things, ought to apply to such personal
cases.
7. The commodities required for the aid and
support of labour have been generalised as capital.
Capital has again been generalised as credit,
which implies that the owners of capital and
those most competent to use it are brought into
industrial association. It still remains to trace
Further how this is brought about by means of
banking agency. The subject has been much
obscured by a collateral question, viz., the issue
of notes by bankers to take the place of money
in the more exact sense of the word, as a general
irculating medium. Those who have been very
conversant with the subject in all its details have
not always been careful enough to distinguish
Detween such circulation, and the uses of capital
CONDITIONAL OWNERSHIP : CREDIT ; BANKING. 223
made available by means of loans for productive
purposes. Thus Mr. J. E. McCulloch in his well-
known treatise on Metallic and Paper Money and
Banks does not bring out at all clearly the es-
sential difference between notes and other obliga-
tions payable at some future date ( 2). He
writes when treating of the issue of paper sub-
stituted for coin, " Suppose for example that a
capitalist issues a promissory note for 1,OOOZ.
This he does by advancing it to an individual
in whose solvency he has confidence, and who
has given him security for its repayment with
interest. In point of fact therefore the issuer has
exchanged his promissory note to pay 1,OOOZ. for
an obligation of equal amount bearing the current
rate of interest ; and so long as the note, the
intrinsic worth of which cannot well exceed a
sixpence, remains in circulation, he will, supposing
interest to be at 5 per cent., receive from it a
revenue of 50L a year. The business of bankers
who issue notes is conducted on this principle.
They could make no profit were they obliged to
keep dead stock or bullion in their coffers equal
to the amount of their notes in circulation. But
if they be in good credit a fourth or a fifth part
of this sum will be sufficient," &c. When it is
said that a banker could make no profit if he
were obliged to keep stock equal in amount to
the notes issued, it must mean no more profit
than that amount would bring in if well employed
and invested, and there is no reason whatever
CHAP. IV.
224 MONEY AND VALUE.
CHAP. IV
why a bankers stock should be worth more than
that of any one else. The issue of notes to the
extent of four or five times the amount of his
own stock will, no doubt, afford a profit as far
as they can certainly be maintained in circulation.
But any one with a reputation for wealth might
so issue notes, and if they were wanted and if
his credit remained undoubted they would continue
in circulation just in the same way ; this throws
no light on the special work and service done by
the banker. The analogy suggested of a note
bearing interest tends to confound together two
distinctly different processes. Every one knows that
a banknote does not bear interest, and is payable
on demand. It takes the place of metallic money
as a tally or substitute (II. 7). It passes from
hand to hand as a reserve only of purchasing power,
and only so far as the community to whom it is
issued will retain such a reserve. But the natural
desire of every one is to invest or use, that is,
to part with and spend his " money/' and all the
undoubted credit of the Bank of England will not
enable it to keep out in circulation a single note
more than is wanted to be held for this special
purpose. It is not therefore only the credit of
the banker, but the very special and limited
needs of the community with whom he deals,
which determine the amount of his issues, in
this form. An over-issue would no doubt lead
to depreciation, but if notes are convertible into
gold on demand, the tendency to such an excess
CONDITIONAL OWNERSHIP : CREDIT ; BANKING. 225
is under all ordinary circumstances effectually
checked.
As far as notes are kept in circulation the issuer,
whether he be a banker or not, does certainly
borrow from constantly changing members of the
public who hold his notes, but it may be said of
each and all of them successively that, as holders
of notes, they are not using purchasing power but
holding it in reserve, and however useful an ade-
quate amount of circulating medium may be, it
is not directly correlated with any work of pro-
duction which can afford increase or profit to the
owner. But any one who can so continuously
borrow value may continuously employ it. If
three-fourths or four-fifths of the total notes issued
are kept in circulation that portion of value can
be used, but the man represented as borrowing
1,OOOZ. at 5 per cent, interest is not the one who
will keep them. He has to deal directly or in-
directly with the consumption of labourers engaged
in making new value. More or less of such money
will pass through his hands according to the
nature of the work he has to do, but most
assuredly it will not remain idle in them.
This distribution of capitalthis selection of
agents who will make good use of loans is the
special work of banking. The issue of notes is
not by any means essential to it. Whether a
banker issue his own notes, or those of others,
the borrower is sure to part with them as soon as
may be, and these or some other money or notes
CHAP. IV.
226 MONEY AND VALUE.
CHAP. IV.
will find their way into the hands of those who
have no immediate use for this purchasing power.
The function of the banker is to take this surplus
and find suitable employment for it. Money is
like water : one pound is jusfc like another pound,
and no matter how diverse the employments of
those who severally own that which has exchange
value, any surplus is applicable to any deficiency,
and the same notes will measure and convey these
values over and over again. There is no hard and
fast line to circumscribe the compass within which
a banker may make such adjustments. This is a
point to be decided by his own experience. If he
find he has in his connection more borrowers than
lenders at one time, and the reverse at another, he
will try to extend, not necessarily the aggregate,
but the range of his operations, so as to attain
a more equable average. His own capital that
purchasing power of which he is the unqualified
owner must make good the aberrations on both
sides. He is of course directly liable for all money
lent to him. But though his obligations as a
debtor are the more stringent, still, on the other
hand, if his customers find that he cannot give
them the support which they may reasonably
expect, he would lose his business and connection
altogether. For the end and object of all this
industrial borrowing and lending is to give pur-
chasing power to those who can immediately
mploy it, and to take it from those who have
no present use for it. They know nothing of each
CONDITIONAL OWNERSHIP : CREDIT ; BANKING. 227
other, and have their own cares and risks to attend
to. They severally do their section of work, and
the banker does his, each on his own personal
responsibility. But what the latter deals with is
deposits, i.e. with the average balances of "money,"
i.e. purchasing power, which his customers leave
in his hands : the issue of notes is in no way
essential to his position.
8. It is needless to go back upon the question
of the over-issue of substitutes for money, or of
the possible redundance of the currency itself, but
within the considerations already discussed, and
admitting the necessity of insisting upon the con-
vertibility of all notes issued, a further point may
here be conveniently raised, viz., whether the issue
of such notes should be the exclusive function of
one central authority, or, whether it may be left to
any individuals who may succeed in getting their
notes into circulation.
A real economy is no doubt effected by the use
of notes, especially in certain early stages of mone-
tary organisation. Instead of counting out amounts
of coin over and over again, which is useless when
money is required merely as a measure of value,
notes transfer ownership without going through
this comparatively laborious and tedious process.
Coin bears a small proportion to the actual trans-
actions in commodities of all kinds. Notes passing
still more quickly and easily from hand to hand do
far more work ; or, conversely, a smaller value of
notes will do the same amount of work as a larger
Q '2
CHAP. IV.
Nature
of the
security
conveyed
in a bank
note.
228
MONEY AND VALUE.
CHAP. IV.
Scotch
Banks.
value of coin. Judicious and enterprising bankers
who promote the activity of well-devised industry
may aid very greatly in making more work for
money to do, and at the same time supplying the
circulating medium required. Thus the Scotch
Banks, in early days, made admirable use of credit
obtained in this way, and their success in very
meagre fields of enterprise is a standing proof how
completely well-directed labour, barely supported
by what are regarded as the necessaries of life, is
the efficient cause of the creation of substantial
wealth. Whether the operation is described as
making capital where none before existed, or as
making existing capital productive, its true nature
is the same. All those who successively held
banker's notes had parted with value for them,
and this value wns used by those who had obtained
loans in notes and passed them on in exchange
for such things as they required. The amount of
circulation which the community could retain was
by no means an inapt measure of the commodities
which could be made applicable to supply the
continually recurring wants of consumers, and fairly
indicated the limit to which current expenditure
might safely be extended. With equal discretion
fresh capital was also introduced into these new
fields of industry by means of cash credits, the
extent of which was not limited by the amount
'of their note circulation, but by a wider apprehen-
sion of the more permanently productive uses which
capital might be made to subserve. Notes were
CONDITIONAL OWNERSHIP : CREDIT ; BANKING. 229
an important adjunct : a means of economy which
enabled these banks to work more cheaply in fields
often very poor in the resources afforded by nature.
But their success is due to the rare prudence and
vigour with which difficulties were met and new
adaptations of capital and labour effectually worked
out. Much also is due to the character of the
people themselves who could be so aided, and there
could hardly be a more efficient sumptuary police
in a small community than a shrewd bank agent,
with the purse-strings in his hands, and a keen
interest in the well-doing of his customers.
Still, especially when we come to a more ad-
vanced stage of organisation, a more complete
division of function is to be desired. Banks are
necessarily closely connected with the risks of
industrial enterprise, but are not always managed
with such skill and prudence. And although an
issue of notes in excess of the immediate and
special requirements of the public is impossible,
it does not follow either that the public require-
ment may not itself be exaggerated in times of
speculative excitement, or that any bank or banks
giving way to a strong tide of popular delusion
might not increase their note circulation, both to
supply an unduly inflated demand, and further, at
the expense of other banks who might be temporarily
cast into the shade by judiciously abstaining from
business which they believed to be conducted on
fallacious bases. There can be no doubt that banks
may do a very great deal to promote bad, as well
CHAP. IV,
230
MONEY AND VALUE.
CHAP. IV.
Notes the
final re-
serve.
as good, business, and that excessive issues might
well grow with bad business though neither the
leading cause nor the measure of it. If in this way
the aggregate currency became redundant and thus
deteriorated in value, the evil would be a doubled one,
and must be distinctly so recognised. There are not
only false and exaggerated estimates expressed in the
terms of money to be considered, but the value of
the measure of value itself has become depreciated.
The note-holder may reasonably expect that the
reserve which he must needs keep in hand should
depend as directly as possible on the large generali-
sation and wide average of bullion, and not in any
way upon the smaller generalisation and limited
average of any particular business or locality. The
association of those who deal with a bank in the
ordinary sense of the word, whether as lenders or
borrowers, is voluntary. That of the holder of its
current notes practically is not so. Other bills and
promissory notes no doubt can be passed freely from
hand to hand, but circulate only among those who,
as dealing with capital, are conversant with the
uses to which it is applied, and can therefore form
their own judgment as to the ability of the bor-
rowers to fulfil their obligation to pay " money "
within a given period. But a bank-note, if it is
to. be kept out as currency at all, must circulate
indiscriminately and pass freely from one to another
without any question whatever as to the uses to
which it may be applied. And as only a certain
I limited aggregate value of currency can be used in
CONDITIONAL OWNERSHIP : CREDIT ; BANKING. 231
this form, if so much unsafe " money " is held in
circulation, just so much safe money is kept out :
and practically no man in the ordinary course of
business can afford to refuse a note which according
to existing local custom is considered good pay-
ment. Moreover, a note which takes the place of
money is not merely a personal reserve, for the
very nature of money requires that use inevitably
puts this reserve into circulation to the benefit of
the community at large. It should serve even in
the case of the utmost disaster as a starting-point
for fresh endeavours. But if the note-owner's claim
is only a personal one against the banker whose
general assets may have been largely wasted in
abortive efforts of nominally productive enterprise,
they have nothing to fall back upon which can serve
them or any one else in such an emergency. Nor
is their position materially altered by Sir Eobert
Peel's Acts of 1844 and 1845 which provide that
bankers issuing notes above a certain limit then
fixed should hold a corresponding increase of coin. 1
This precaution may be effective against the temp-
tation to obtain undue credit by an over-issue of
notes, but it affords no special security to the
holders of any of them. One note cannot be dis-
tinguished from another, nor has one creditor a
right to any preference over another : the coin
must be shared by all alike as a general asset of
the estate in case of insolvency. Such notes are
not in fact a reserve at all. In 1824-5, when a
1 7 & 8 Vic. c. 32 ; 8 & 9 Vic. c, 37 and 38.
CHAP.
232
MONEY AND VALUE.
CHAP. IV.
large number of country banks failed, the Bank of
England had at once to send out about ten million
pounds' worth of currency. The daily work of the
communities affected had to be carried on, and the
reconstruction of credit in any form without the
aid of money which can be trusted, is impracticable.
The distinction which must be clearly drawn, is
between the economy in the use of money which
banking affords, and the ultimate integrity of
money itself or whatever specifically takes the
place of it. The old story of the frightened
creditor who violently insisted on taking out
immediately his balance at his bankers, and went
out exulting with a bundle of their own notes
in his hand, very aptly illustrates the difference
which is instinctively felt. His first distrust may
have been just as foolish as his subsequent con-
fidence, but for all that, money and bank credit are
two very different things which ought not to stand
upon the same footing. Nor would the case be
better if notes were made to constitute a first
claim in preference to other debts : the remedy
is not complete, nor is there any justice in sub-
jecting the assets on which general trade creditors
rely, to such a diminution. To make good the
independent value of this ultimate reserve it must
have a separate and well-defined basis of its own.
The law of restriction, with the exceptions of
long standing continued under the Acts just cited,
1 obtains generally throughout the kingdom ; nor
need these exceptions cause any practical dis-
CONDITIONAL OWNERSHIP : CREDIT ; BANKING. 233
quietude, though the issue of bank notes which vir-
tually cannot be refused, though not actually " legal
tender/' remains as an anomaly in our system.
It is true that the personal trust reposed in a
banker to pay the cheques of a depositor in any
way which may best suit the holder of them
involves, generally speaking, far less risk than any
one would be likely to incur in keeping his own
specific money, which might be lost or stolen ; and
it is equally true that the note of a solvent bank is
quite as good as a cheque. Still these allegations
do not meet all sides of the question. It is well
that the difference between the jus in personam
which is all that any man has, as against his
banker, and the jus in rem which he has, as
owning money possessing an independent value of
its own, should be clearly apprehended. It should
be borne in mind also how very limited is the
restriction required. Any form whatever promising
to pay money, or to transfer it, is open to every
one, and may be circulated by any lawful means.
Only the use of the one special form which virtually
simulates metallic money itself is forbidden.
Some further detailed remarks on local and
general currency will be found in the Appendix ;
also some reference to the manifest abuses of credit
when its forms are simulated without due regard to
the laws which govern the production of value.
Meantime the argument on more general principles
is continued without interruption.
CHAP. IV.
234 MONEY AND VALUE.
CHAP. IV.
CashT"
Cash
9. Though bank notes are of much use in
carrying on the ordinary details of interchange,
they form but a very subsidiary part of the great
machinery for the wider adjustment of credit which
has now to be considered. Values of the most
diverse nature, as expressed in the common terms
of current money, have to be set the one against
the other. Even if this money be not so well
based or so exact as it should be it must needs be
accepted, for the time being, for this purpose. Its
instability injuriously affects the work of produc-
tion, because it may alter and confuse the true
value of these terms, but, as a matter of practical
necessity, the existing common measure of value
must be accepted. All means or instruments by
which values are expressed are indiscriminately
brought together, and it was for this reason that I
deemed it well specially to refer to underlying
differences, which, though lost sight of for a while,
must not permanently be disregarded.
The great development of banking in recent
years has been by means of "deposit accounts."
By very long established usage bankers have re-
ceived "money" both from traders and others, to
be repaid when required, but, subject to this obliga-
tion, the use of it was left to their own discretion,
though, speaking generally, the unwritten code of
right has restricted them to those dealings which
did not involve the first risks (or contingent profits)
of enterprise. They have always deal with compara-
tively large aggregate values, and their function is
CONDITIONAL OWNERSHIP : CREDIT ; BANKING. 235
to distribute these means of supporting productive
work to an extent which they could not possibly
supervise in detail. More recently joint-stock
banks have adopted the plan of paying interest on
the amounts left with them, and have thus attracted
for their own uses much " money " which otherwise
would either have remained unemployed or have
been invested for short periods in other securities.
These cash deposits, as they are called, are re-
payable either on demand or on short notice. That
is : some hundreds of millions of pounds sterling of
so-called " money " are in bankers' hands through-
out the kingdom, every penny of which may be
said to be at the immediate disposal of the de-
positors. Yet so strictly are the operations of
interchange controlled by natural conditions that,
for the most part, this " money " can and is used
for other purposes of which the depositors neither
have, nor wish to have, any specific knowledge
at all.
The account of each individual depositor is con-
stantly changing, but that which goes out from
one hand comes in from another. For the most
part it must needs do so, for the purchasing power
put in force by any buyer must be transferred to
some seller. A somewhat similar remark has
already been made as regards tallies or substitutes
for metallic money (II. 5) ; but now, in a much
more advanced stage of the subject, we are treating
rather of the uses of money than of the symbol
itself. To a very large extent the transfers thus
CHAP. IV.
Cheques.
236 MONEY AND VALUE.
CHAP. IV.
required are effected by mere book entries in
bankers' accounts. They might be made by a
mere word or nod, and are done in practice by
means of mere memoranda of the simplest kind
that will serve for a record. The familiar form of
a cheque is most commonly used, and this is some-
times very loosely classed as an instrument of
credit. But it is not so. The true intention of it
is merely to cause a transfer to be made from the
account of the drawer to the holder of the cheque,
who may, if he chooses, at once draw out the sum
specified in gold or notes. A may thus transfer
" money " on credit to B by means of a cheque on
his (A's) bankers. But the reverse of this trans-
action must be taken before coming to the con-
clusion that credit is expressed by the cheque
itself. It is B who takes the cheque, and may be
fairly assumed to have given consideration for it
in some form ; and he certainly does not give credit
to A in any proper sense of the term, though he
no doubt does give credence to the fully implied
assurance that the "money" is in the bankers'
hands for him to deal with immediately at his
absolute discretion. A promissory note payable
at some future time does imply credit given and
the use of money, subject to the risks involved in
such use. The two documents represent obliga-
tions of a totally different kind. There is no
intention of giving credit or incurring such risks
expressed by a cheque. A man may sell jewels,
and, through mere inadvertence, deliver an empty
CONDITIONAL OWNERSHIP : CREDIT ; BANKING. 237
casket ; so may he receive value and deliver a
cheque without having provided funds in his
bankers' hands to meet it : the one case is very
much on a par with the other. 1 If B choose to
hold A's cheque, no doubt in some sense he trusts
A, in whose account a certain sum remains, unused,
but at B's disposal. The case supposed serves to
illustrate how the compass rather than the subject
of rights may come into question. A's right was a
personal claim against his bankers : more than that
he had not himself and could not transfer to any
one. If B had claimed and taken possession of
that to which he had a right, viz., either actual
money or a transfer in the bankers' accounts, he
could have held the one as much as the other
against all the world. But if at any future time
the bankers have no funds of A's in hand, or
should he have failed, they are under no obligation
whatever to give effect to his order. B may thus
lose by trusting A, but it is misleading to call
this credit. Cheques kept in any way in circu-
lation have a closer analogy to notes, but they
are not intended to answer any such purpose,
and need not be taken into consideration as being
incidentally used for it.
1 The exigencies of trade sometimes require very large transfers of
securities to be made simultaneously, corresponding cheques being
passed against them. Cases of considerable intricacy may thus arise
in the event of unexpected failure to carry out complicated arrange-
ments. Still the rule certainly is that a cheque means Cash, not
Credit, and an unpaid cheque implies an incomplete transaction which
should be of no effect on either side.
CHAP. IV.
238
MONEY AND VALUE.
CHAP. IV.
General
principles
affecting
all loans.
A cheque is, strictly, merely an order for the
immediate transfer of value, either in actual money
paid on account of the drawer to the holder, or
simply deducted from one account and added to
the other ; and these together with bills of exchange
and promissory notes actually due, and the book
accounts in which " cash " received and paid is
entered, are the chief means by which the daily
transactions of a large aggregate of individuals are
adjusted in a way which will seem very artificial
as long as the mind is suffered to dwell on the
ostensible use of substantive money, but which will
be found on looking a little further into the matter
to be very simply and closely in accordance with
the actual work which is ever going on around us.
One general principle affects all loan transactions,
in whatever form, which are based on industrial
operations whether of manufacture or distribution.
The work, as has been already noticed, is not
stationary but steadily progressive. Hence all that
constitutes its value is, normally, progressive and
cumulative. Production may either be completed
in one process or in many distinct and separate
stages. In the latter case each of these will involve
a cash settlement between those who have been
successively engaged in carrying on the work, and
each will, normally, represent a larger value than
the former until the last final transfer to the
consumer ; and this gradual increment will include
the recompense of those on whose responsibility the
several undertakings are carried on.
CONDITIONAL OWNERSHIP : CREDIT ; BANKING.
239
Another point may most conveniently be noticed
in this context.
The multiplication of bills and promissory notes
has been regarded as directly raising prices in the
same way as an over-issue of paper-money. But
if due regard is had to the relation which all instru-
ments of credit must bear to cash, it will be seen
that this analogy does not hold good. For obliga-
tions of the kind are of no avail until they are
exchanged for cash. General prices are an equation
of all supply, to all demand made effective by exist-
ing purchasing power, and the mere transfer of
this power from one to another cannot increase its
amount. The effect of any redistribution of credit can
only be to employ actually existing capital. B may
discount a bill for A, and subsequently rediscount
it with C, and C with D, and so on, but B and C
simply get back the value they paid ; the capital
they took is actually restored to the general market ;
and D stands in their place as regards A. All these
indicate transfers and nothing more. They may be
symptoms of excitement and of obligations rashly
assumed by those who are not able to carry them
out ; but they cannot be the efficient cause of any
change in prices. The value expressed in the terms
of money on all documents implying the use of
commodities is not the measure of the value of
those commodities, but of the definite personal
obligation of those who have the use of them.
The amount of a bill accepted by a trader in no
way governs the more or less price he obtains
CHAP. IV.
Bills not
the caiise
of a rise in
prices.
240
MONEY AND VALUE.
CHAP. IV.
The distri-
bution of
credit.
from the consumer of his merchandise. It exactly
expresses only the extent of his obligation to those
who have aided his work with their capital. If
the aggregate of such bills in circulation is exces-
sive, it tends to raise the .cost of loans, and is, no
doubt, a warning sign to bankers. But the appro-
priate remedy is a more careful selection of bills.
There is no reason for an indiscriminate pressure as
though mere transfers from lenders to borrowers
could make money actually scarce. The same may
be said of all loans on stocks or shares or any other
securities. So further, if a bill is passed from hand
to hand in payment of accounts, it no more enhances
prices than would a bank note so used, and such
notes only enhance prices nominally by becoming
themselves depreciated ; but a bill due payable in
sterling money cannot be depreciated as long as
the parties to it are solvent.
10. In accordance with the. general condition
set forth, " cash," that is, purchasing power imme-
diately available, is distributed. Gold and notes are
in this sense no more cash than an entry in a
banker's book against which cheques may be
passed. The current rate of interest depends on
the equation of the supply of cash to the demand
for loans, but the amount paid is calculated on the
number of days for which the use of " the money "
(that is, more strictly speaking, of the money's
worth) is required, and during which time value
will be normally in process of augmentation.
Thus A may have sold goods to B and taken his
CONDITIONAL OWNERSHIP : CREDIT ; BANKING. 241
promissory note payable three months after date in
payment for them. B has immediate use of the
commodities received, and A has nothing directly
to do with the use which B may make of them ;
but the recompense for the advantage thus given
by A to B is included in the price charged for the
goods. Cash prices and credit prices are determined
subject to the estimated difference in value just
referred to. This bill however is a " negotiable "
instrument, and by the simple form of " endorse-
ment," A can transfer all the rights he has in it
to any one else ; and further, by the universal custom
of commerce, personally guarantees by this act to
all subsequent holders the due fulfilment of the
obligation expressed. The bill may pass by the
same means and under the same conditions to
several successive owners, but whoever holds it can
get payment of the amount at once from a banker,
less the " discount " for so many days, if he or any
one of those who have thus signed their names on
the bill, are in good credit. Or B might equally
well arrange to get a loan from a banker and pay
interest to him, and cash prices to A. All the
very small differences involved are a mere matter
of calculation and arrangement. Or again, X, who
may be engaged in some trade not generally known,
may find it to his advantage to send his merchan-
dise to Y, whose credit is well established, and who
is, as it were, a connecting link between X and the
general distributors of Cash ; as the bills drawn by
X upon Y and "accepted" by him command the
CHAP. IV.
242 MONEY AND VALUE.
CHAP. IV.
confidence of bankers. Some such arrangements
as these suit many of the exigencies of foreign
commerce.
It is needless to expatiate on the many and
various expedients of the kind which may be
adopted : the object of all being to give " cash "
to those who are engaged in the processes of repro-
ductive industry, subject to their obligation to
return " cash " as the work of production, or the
portion of it on which they may be engaged, is
completed. The same principle applies to all,
whether manufacturers, merchants, or " distributors."
Directly or indirectly the full use, though not in
an unrestricted sense, the ownership of money's
worth is at the disposal of those who can be trusted
to reproduce the value advanced. Their possession
is subject to the fulfilment of their obligations.
Failing this, their creditors but not any one
creditor more than another can take possession of
whatever the debtor may own for the satisfaction of
the right which they have in common against him.
There is no rule, as of right, which can determine
the exact forms which credit may assume. The
more sound and healthy the conditions of industrial
co-operation, the more freely will its terms be
adapted to their manifold requirements. These are
essentially matters of expediency. All forms may
be right if mutually understood and rightly used.
Divisions, sub-divisions, and associations of all
kinds may be made, tested by experience and
maintained or abandoned as it may dictate, but the
CONDITIONAL OWNERSHIP : CREDIT ; BANKING. 243
CHAP. IV.
And its re-
general tendency of all highly organised life is
towards division and specialisation of function, and
that of industry forms no exception to the rule.
Some joint-stock and private firms carry on banking
operations in London or throughout the country ;
some confine themselves specially to dealings in
bills of exchange. Some do business, modified in
form but essentially banking, with foreign countries,
and for all parts of the world. All alike deal with
values implying the productive use of commodities
with which they are not brought into direct contact.
Speaking broadly, the rate of remuneration, cal-
culated always with reference to time, is in inverse
proportion to the extent to wliich values, however
represented, can be generalised and appropriately
dealt with in larger or smaller aggregates. Early
in the century the operations of commerce and
industry were on a comparatively limited scale, the
work was restricted to few hands and little sub-
divided, while the rate of profit bore a very large
proportion to the values interchanged. Now, an
average gain of 2 or 3 per cent, on the transactions
effected will represent a large amount of mercantile
or manufacturing service of this kind : bankers work
on differences between interest given and interest
received, giving a far narrower margin. Very sub-
stantial service is rendered for the equivalent of
less than a penny in the pound. One class of
brokers dealing in large aggregates of bills of ex-
change, usually receive at the rate of TF per cent,
per annum, or five farthings per 100 per month.
E 2
244
MONEY AND VALUE.
HAP. IV.
Some of the leading Joint-Stock Banks pay 15 to
20 per cent, to their shareholders, but this large
gain is earned partly on capital, which, though not
specifically appropriated to them, has accumulated
in addition to the nominal amount of their shares,
but chiefly on ten or twelve times the amount of
deposits belonging to others on which interest is
paid, which is made to circulate by their agency, at
a somewhat higher rate, and which is so distributed
as credit accorded to productive industry that the
average of waste on the very large aggregate em-
ployed is extremely small, though every now and
then the public are startled by hearing of losses and
frauds to a vast extent. Such exceptions with such
average results only prove the rule of general
stability. It is not implied that these low rates of
remuneration are inadequate. The ultimate profits
in some cases indicate very much the reverse, but
all that need here be remarked is that these ad-
justments which give so much force and elasticity
to that part of the available wealth of the country
which constitutes its capital stock are efficiently
made without weighting either industry or the con-
sumer with any heavy burden. 1
1 Taking figures which roughly represent the position of some of
the leading banks, let us suppose a share capital of 1,500,000 a
reserve of undivided capital of .1,000,000, making 2,500,000 in all :
and deposits amounting to 25,000,000. 3 per cent, on all their
own capital would give 75,000 or 5 per cent, on the total of the
share capital only. An average gain at the rate of 1 per cent, per
annum on 25,000,000, of course implying very many shorter trans-
actions to very many times that large amount, would give 250,000
more or 16| per cent, on the share capital, in all 2 If per cent. Banks
CONDITIONAL OWNERSHIP : CREDIT ; BANKING. 245
Moreover all these divisions of functions are
merely empirically made, and have no claim what-
ever to be maintained further than they serve to
promote better economy or higher efficiency.
Dealers having funds of their own will naturally
avail themselves more sparingly of credit, i.e. of the
capital of others. Yet the complaint is sometimes
made by the wealthy that they suffer unduly from
the competition of those who avail themselves freely
of its advantages. This suggests two replies. It
cannot be urged that a banker should not lend cash
to enterprising men, merely because they choose to
work better or harder, or for a smaller profit than
those who have no charge for interest to meet.
The banker and his customer may surely be allowed
to judge what is best for their own interests, and
further, cheap production means normally service
done on the best terms, for the general interests of
consumers. If borrowers risk other people's money
more recklessly than any prudent man would risk
his own, it is the lenders who lose, and the remedy
is not the general restriction of credit, but a due
insistance upon the obligations attending it. The
other reply more nearly affects the general question
of the use of credit. Bankers of course are liable
to have cash deposited with them when they do not
know how to employ it at once, and have not always
cash to spare when good occasions for using it are
gain or lose like any other capitalists by a high or low rate of interest
but, as employers of capital, work for a difference in charge which
does not depend upon the general rate. The service they render is
substantially the same whatever it may be.
CHAP. IV.
246
MONEY AND VALUE.
CHAP. IV.
General
demand
governs
production,
though
not the
cause of it.
presented to them. This, mutatis mutandis, is the
case with every one who has to effect adjustments of
any kind, and the utmost skill and forethought cannot
quite overcome this disadvantage. Those who use
credit enjoy the corresponding advantage, they need
only take and pay for loans as they may actually
require them. Subject to this necessary correction,
sound theory would require that the average rate
of interest on loans should not trench unduly upon
the share of those more directly engaged in the
active work of production. There is no reason
why more than interest, and a fair indemnity for
risks incurred, should accrue to capital in whosever
hands it may be, and the complaint alleged merely
goes to prove that the system of credit is in the
main well and efficiently organised, and as far as
such cases are concerned is on an equitable basis.
11. I have made no reference to the abuses
which may be made of credit, for it is the system,
and not the way in which it may be misapplied,
which is now under review. One point however
may be noticed. The distributors of credit no doubt
undertake grave responsibilities ; they can do much
to encourage sound enterprise, and to check ill-
directed or ill-devised projects, for within certain
limits they have the disposal without any direct
control of the money of the general public ( 9).
But not the less does the selection of the completed
products offered, rest absolutely with those who
ultimately exercise the rights of unqualified owner-
ship over this money, that is, with the consumers
CONDITIONAL OWNERSHIP : CREDIT ; BANKING. 247
who spend it according to their own discretion, over
which neither banker nor producer, as such, have
any control whatever. Those who dispense the
funds of the public can only do so on the condition
of promoting the production of those things which
this public, the value of whose money has been
expended, will accept as value on completion of the
work. Generalise demand and supply as we will
it is impossible to escape this conclusion : though
mere demand does nothing whatever towards aiding
the work of production, it effectually determines the
direction in which labour must be employed in order
to be recognised as productive or serviceable.
The
bankers'
"clearing.
12. The extent to which these means, the
nature and form of which I have endeavoured to
house.
describe, are used to adjust all commodities, in the
widest sense of the woid, to all the various changing
wants of the community, may best be exemplified
by a reference to the results shown by the bankers'
" clearing house " in London. Nothing can be
more simple than the principle upon which it is
conducted. Its object is to effect an interchange
of all cash obligations. Bills of exchange and
promissory notes due, implying completed uses,
are taken as cash, so are all cheques implying book
transfers. A bill or note discounted before it
becomes due and thus implying continued obliga-
tion, remains in the discounter's hand, but the
cheque given for it is cash. On the other hand, all
CHAP. IV.
248
MONEY AND VALUE.
CHAP. IV.
Large
amounts
passed
through it,
the accumulation of purchasing power expressed
by the aggregate of bankers' accounts due to their
customers is cash. All these form, as it were, the
ontents of one vast reservoir, which supplies and
is supplied by innumerable streams. All values,
like water, form one undistinguishable mass, but not
the less surely does the preservation of its equili-
brium depend upon the due inflow and outflow
of every tiny rill and conduit connected with it.
Each bank of course makes for itself the transfers
required, as between its own customers. If A, B,
C, &c., all deal with one bank, all their transactions
can be arranged by transfers in that bank's books,
made upon bills due, cheques, &c., drawn upon, and
paid into their several accounts as cash, and this
alone will represent a very large aggregate of
adjustment. The clearing-house shows the inter-
change between bank and bank of all the cash
obligations which each severally may hold on all
the others, the final adjustments being made by
transfer orders on the Bank of England, which, to
a certain extent, is the bank of all other bankers,
and the use of " money " in any specific form is
dispensed with altogether. The transfers adjusted
by London bankers alone amounted in the year
ending 30th April, 1875, to a total of over 6,000
millions. In 1876-7 to 4,873 millions, of which
about 500 to 600 millions l were in connection with
transactions on the Stock Exchange.
1 The published returns show about 950 millions for the Stock
Exchange "settling days," but from this total an allowance must be
CONDITIONAL OWNERSHIP : CREDIT ; BANKING.
249
It is difficult to form any idea of such quantities
without reference to some standard of comparison.
The total amount of the National Debt funded and
unfunded is under 777 millions. Our whole
import and export trade for the latter period was
together about 660 millions. The total value
assessed for income-tax was 543 millions, of which
land and houses in Schedule A form 160 millions,
and railways, mines, &c., trades and professions in
Schedule D 250 millions. The entire farming
stock of the country is roughly estimated at about
300 millions, and this for the most part will
require two or three years for its consumption and
reproduction. Mr. Dudley E, Baxter in 1867
estimated the aggregate income of the United
Kingdom at 814 millions, and was probably
rather under than over the mark (III. 12), and
1,000 millions a year, or say roughly three millions
daily, may be taken as an approximate estimate
of the expenditure of the United Kingdom, the
population of which is thirty -three millions.
Certainly a total of about 5,000 millions of
transfers, even for so great a centre as London,
appears somewhat astounding, but let us try to
see generally what is indicated by them.
As regards Home and Foreign State and Muni-
cipal loans, railway, mining, bank, and other shares,
made for the ordinary transactions of business which are in no way
intermitted at these times. There is, however, a Stock Exchange
" clearing " in anticipation of the " settlement," so the increase in the
bankers' clearing gives no positive indication whatever of the actual
amount of Stock Exchange transactions.
CHAP. IV.
Nature of
the adjust-
ments
effected.
250 MONEY AND VALUE.
CHAP. IV.
and securities based on them, the values transferred
represent the estimate of many years future pro-
duction (III. 6), and necessarily are out of all pro-
portion to the income of any single year. Hence
we may more readily infer that these transactions
are in reality to a great extent mere exchanges of
one property for another, although the buyers and
sellers may not directly meet in the market. It is
impossible to distinguish in these returns what
portion of the value may be made up of newly-
acquired accumulations. Stocks and shares espe-
cially can be dealt with in large or small amounts,
and small individual savings, gains, or losses lead
to innumerable transfers of them.
The great gambling transactions in " time
bargains " on the Stock Exchange do not contribute
much to swell the total ; for in these cases the
differences only between the prices quoted at the
time the contract was made and on the "settling
day" are ultimately paid. Even in the case of
purchases bond fide for actual delivery, one trans-
action may quite rightly be set against another in
any broker's account, so that the total given is no
measure of the actual dealings effected, as only the
heques given for the final balances go through the
general clearing-house. It is most desirable that
property of this kind should freely pass from one
to the other; but the more clearly the general public
understand that all this buying and selling of
stocks and shares is quite outside of the work
f production, the better. It may be of vital
CONDITIONAL OWNERSHIP : CREDIT ; BANKING. 251
consequence that a government or a public company
should be in good credit, but their corporate energy
is by no means directly affected by any such deal-
ings ; and apart from considerations of this kind,
all the national debts, and all the railway stock, and
debenture stock in the world, might be sold and
bought ten times over without altering the amount
of taxation, or the pay of any one official, to the
extent of a single penny.
Setting aside Stock Exchange transactions, which
for the most part indicate transfers of this nature,
we have still fourteen to fifteen millions of value
dealt with in some way or other for every working
day of the year. In this, however, will be included
dealings in land, houses, factories, ships, and other
income-yielding properties, which will also indicate
many mere exchanges made indirectly and be
bought and sold at a greater or less multiple of
their estimated annual return. These transactions
are far less frequent than those in shares, and the
changes of ownership often affect the productive
uses which such properties may subserve.
Many of the entries in this category may, how-
ever, represent mere transfers of ownership in no
way conducing to productive agency. Thus
merchandize may be, and in times of speculative
excitement often is, sold over and over again,
without affecting its ultimate use one way or the
other. The difference between last year's total and
that of 1874-5 is no doubt largely owing to the
reduced amount of mere transfers of this kind.
CHAP. IV.
252 MONEY AND VALUE.
CHAP. IV.
But making full allowance for all such dealings,
there will still remain a total which would indicate
that the aggregate of daily transfers of value by
means of cheques passed is a large multiple of the
aggregate of daily consumption. For it must be
remembered that the same kind of work which is
done in the London clearing-house, is also carried
on wherever there is a bank throughout the king-
dom, only with somewhat less perfect machinery ;
and all this moreover is in excess of the innumer-
able small transactions daily carried out by means
of the currency. The most perfect system shows
the results most clearly, but exactly the same
principles of interchange obtain throughout.
Whatever the ultimate estimate may be, it must
indicate a very large amount practically associated
with industrial work, and which represents the
extreme activity and adaptability of credit to the
various requirements of society. There is no reason
whatever to wish to limit the number of times the
value of any commodity may enter into successive
cheques passed through bank accounts. The incep-
tion and completion of every separate stage of
production will, as a rule, be represented by
cheques, each of which is a settlement, so far, for
a definite share of work completed : so also the
collection of various items required for further
production : and again the aggregation of com-
pleted articles in the warehouses of wholesale
dealers, their appropriation to retail distributors,
and to a large extent their final dispersion among
CONDITIONAL OWNERSHIP : CREDIT ; BANKING. 253
consumers and the re -collection from them of the
value delivered : all this work may be completely
effected by mere book transfers of value. The
same means are applicable for all the transfers
required in this country to carry out our import
and export trade with all parts of the world.
Further as regards the more special adaptations
of credit. A man, let us suppose, enters upon a
transaction which will require six months for
completion. At the time he has cash in his own
hands, and of course uses it. After a while he has
other cash obligations to meet, and borrows on
valid securities, perhaps for a month or more or
less, when again funds of his own become available
to him for a while : and so on. It is impossible
to follow all the details of adjustments of cash
and credit loans of this nature, but every one
engaged in business, except on the very smallest
and simplest scale, will have to spend some time
and thought every week or every day in planning
such arrangements. And with the strictest regard
to probity in exposing no one to risks beyond
those inseparable from the nature of the obligations
which he may have severally with those with whom
he deals will find means of avoiding a needless
use of borrowed funds, w^hich as regards himself
personally involves loss of interest, and as regards
the public a waste of ' ' purchasing power " which
had better be actively employed. Even if new
products are brought into the country, they will
be for the most part absorbed into the great stream
CHAP. IV.
254 MONEY AND VALUE.
CHAP. IV.
of traffic entirely by these means. Thus if we
suppose the sale of a cargo of wheat from Australia,
no one here having any prior claim upon it, pay-
ment in the ordinary course of trade will be by a
cheque, i.e. banker's cash will be transferred from
the buyer to the importer, who may draw out the
whole amount in gold, but in all probability it
would not serve his interest to do so. He might
buy land or shares or consols, all of which could,
as a rule, be paid for most conveniently by cheques
simply transferring value within the same banking
circle. It would be just the same if he bought
merchandise for export. It can equally be obtained
by mere book entries in the common terms of
money. In his turn the buyer becomes a seller,
also getting cheques to replace his cash at the
bank. But following this wheat a little further
we come to a change It must be fitted for use.
Suppose it to be bought by a miller. If he have
not accumulated cash of his own, he will readily be
able to discount his promissory note, drawing thus
upon the general fund of capital in banking circles ;
probably taking out little or nothing in notes or
gold. Indeed, to keep more closely to a simple
illustration, it may be supposed that the miller's
cheque transfers the value of the cargo to the
importer. By the time the obligation of the former
becomes due, the wheat has been ground and turned
into bread, and it is quite within the limits of
possibility to say that every loaf of it may have
been paid for by cheques ; but these cheques
CONDITIONAL OWNERSHIP : CREDIT ; BANKING. 255
represent, normally, other and different work which
has already been accomplished. If consumed by
non-producers it must still be paid for by the value
of other products to which they have in some way
acquired a right. Continuous consumption is
balanced by continuous production without the
necessity for using actual money at all. Circula-
tion of this kind works automatically. All that
producers have to care for is that their several
products are fitted to meet an effective demand.
Whose money it may be that supports them
meanwhile is no concern of theirs.
Such extremely useful and simple operations
swell the total of the clearing-house returns,
proving, as regards any special undertaking,
neither success nor the reverse in the work actu-
ally attempted, but indicating the great flexibility
of the system by which supply and demand are
constantly in course of adjustment, with the
minimum of waste and confusion. Many cheques
moreover are passed as a record, and (as bearing
the stamp required by law) a legal voucher of
payments made, where, if notes and gold had to
be counted out, a balance only would actually be
paid over. Every one knows the practical service
which banks freely render in this way. The vast
total of the clearing-house transfer is thus very
fairly accounted for, though any great increase or
decrease in this total naturally suggests inquiry.
Very much as if the streets were unusually full,
or deserted, we should ask the reason for such a
CHAP. IV.
256
MONEY AND VALUE.
CHAP. IV.
Inferences
deduced.
change in the ordinary signs of traffic. No effects
can be produced without some adequate cause
for them, but the fact itself may admit of many
different interpretations.
13. Two points must be clearly realised in this
context. One is that every single transfer in this
vast aggregate represents value in pounds sterling,
just as fully as if sovereigns were handed over in
every case. Any change in this unit of value would
substantially alter the terms of every document
passed, and every entry made, whether representing
the inception, the completion, or any intermediate
stage of the work to be done ; and also the relative
position of every borrower and of every lender,
in a way infinitely complicated according to the
different periods over which the different obli-
gations dealt with might have extended, or be
designed to extend.
The other, which I propose to examine more at
length, as illustrating the present argument, is, that
by no possibility can the aggregate balance of
<e money," held among the banking community who
contribute to these returns, be changed by any
transaction passing through the clearing-house.
Every entry has its reverse ; there is a " debit " for
every " credit/' an addition for every subtraction.
Thus, if any man is unable to meet his engagements,
his bills due are unpaid, and, with his cheques, are
returned " dishonoured." At the time nothing is
done. His bankers do not pay and those of the
holders of his obligations do not receive. Simply no
CONDITIONAL OWNERSHIP : CREDIT ; BANKING. 257
transfers are made on either side. One failure may,
and generally does, lead to others with the same
immediate negative results. If this were to con-
tinue to a sufficient extent general bankruptcy must
inevitably ensue, and a readjustment of the work-
ing conditions of industry on a new basis altogether
would be forced upon us. But though we have in
this country repeatedly seen that the system of
credit has been momentarily paralysed, because in
times of panic men did not know whom to trust ;
still, the remedy has substantially been found by a
readjustment of the internal resources held within
the limits of the banking community.
When great failures occur the popular impression
naturally is that great losses are then incurred.
But this, as I have already shown, is far from the
truth. The losses have probably been made long
ago, and it is past accumulations that have been
dissipated. Creditors who were living in a false
security then find out that their capital has been
spent or wasted, or at best " sunk," in some form of
production the value of which is not recognised,
and does not call forth any effective demand. Now
although this fact may afford but little consolation
to those who are suffering from heavy losses, it is
of great importance to the general issues concerned.
For no loss is implied of a nature which should lead
to the interruption of any of the productive work
required to supply all the acknowledged wants of
society. If the cause of failure has been loss owing
to misdirected production, that of course must
CHAP. IV.
Adequacy
of existing
capital.
258
MONEY AND VALUE.
CHAP. IV.
cease [iii. 6], but, unless unreasoning credulity is
followed by equally unreasoning suspicion and
timidity, all well-directed industry can and ought
to receive the support of capital currently accumu-
lating to support current wants.
Those who have the misfortune to hold unpaid
obligations have to become borrowers, either upon
securities they hold, or perhaps upon the general
balance of assets which they may be able to show
as adequate to warrant further advances. The
tendency of this borrowing is to make " money,"
i.e. loans, dearer, or in other words to raise the
rate of interest. The exact nature of the change
of position is this : Certain items of (nominal)
capital, now for the first time known to have been
lost, are struck out of the estimate of those whose
money has been dissipated ; the existing " cash "
which might, but for this exposure, have gone the
same road is available for those y who have valid
securities, but not the cash which they expected to
receive. The corrected estimate shows a larger
proportion of borrowers to lenders, but that is all.
The fact that loans can be so raised and paid by a
cheque, simply transferring cash from one account
to another, proves conclusively that banking re-
sources are adequate to meet the strain put upon
them. If a trader or banker to meet deficiencies
arising in this way sell securities, land or consols
for instance, he is set financially at ease, and so
are all concerned in his solvency as far as he is
concerned ; but the cheque which brings about this
CONDITIONAL OWNERSHIP : CREDIT ; BANKING. 259
desired result indicates merely a book transfer from
a rich account to a poor one. The mind can hardly
follow all the changes involved ; the impression
of abundance in place of scarcity is so palpable,
that it is -hard to realise that this benefit is effected
without some addition to the actual supply of
money. Still we know very well that in such
cases the buyers have not to rummage the country
for notes or* gold or any other means of making
the required payment ; what is done is, that a pur-
chasing power not only actually existing but im-
mediately at hand is in some way made available
for active uses, and the buyer of such property,
who owned that reserve, retires so far with his
property from the field altogether. It is not
more capital, but more efficient or more suitable
distribution, that is required.
14. It must not be supposed, however, that the
operations of the clearing-house comprise the whole
system of credit in the country, or even all that
part of it which is carried on through the agency
of bankers. Their chief raison d'etre is no doubt
the division of function implied by credit ; but
those who carry on their undertakings in the main
with their own means, have an equal and a com-
paratively independent share in the great work of
productive industry, though their cash transactions
may still be carried out in detail by the convenient
machinery afforded by bankers. The value of a
commodity may even pass through the clearing-
house repeatedly, while the commodity itself
a '2
CHAP. IV.
The incre-
ment of
capital.
260 MONEY AND VALUE.
CHAP. IV.
remains without the limits of banking agency.
Thus, if a bar of gold sent from abroad be taken
to the Bank of England, it would be included in
the total shown in its weekly returns. But, if it
were sold to a bullion dealer who paid for it by a
cheque, the result would only be a deduction from
his account, and a corresponding addition to that of
the vendor in the books of their respective bankers.
The bullion itself remains, a third item, as a com-
modity specially available for foreign traffic or for
use in the arts or manufacture at home, but outside
the circle either of bankers' cash or of the currency,
though it may at any moment be brought within it
at the option of the owner. So also with all pro-
perty and products except in so far as they may
be the subject of credit until they are brought
into the general market. Then the price of every
item has to be determined according to the current
equation of demand and supply. The money ex-
isting, even in the most general sense of the term,
cannot be commensurable at any one time with all
the property of the country, but the interchanges
made as occasion may require are carried out by a
machinery wonderfully subtle and effective. The
innumerable specific utilities of all kinds offered for
sale successively, represent the special interests of
every producer or owner who affords supply, while
the " purchasing power " by which demand is made
effectual is generalised in the highest degree. Any
demand, or any prospective demand, can at once
be made available to him who sells, and who
CONDITIONAL OWNERSHIP : CREDIT ; BANKING. 261
would in his turn have the use of this purchasing ! CHAP. iv.
power.
Nevertheless there is a constant ebb and flow of
value into banks by means of the currency. Thus,
if a contractor requires notes and coin for any un-
usually large payment of wages, he draws directly
from his banker's stock, though, if not required for
circulation, this currency quickly reappears in
bankers' accounts. So further, currency may be
paid in, but the cheques drawn for the equivalent
value may merely be passed through to other
accounts. In this way the aggregate of "cash"
balances may be increased or lessened, though the
currency which represented the value is not in any
way changed. A shopkeeper, for instance, doing an
active business, receives daily a large amount of
notes and coin which he pays into his bank account ;
but his payments to wholesale dealers or manu-
facturers are usually made by cheques, which the
receivers pay into their accounts, and which thus
go through the clearing-house. Notes and coin go
out rather for cheques paid over the bank's counter
to the general public who have small purchases to
make. Bankers acting in this way as " cashiers,"
greatly facilitate the general circulation of value
however represented ; but the circulation for pro-
ductive uses, and that for consumption, though
equally expressed in the common terms of money,
touch only. They can be seen to be distinct as soon
as we follow the course of the transactions effected.
If by dealings of this kind a banker's accounts
262 MONEY AND VALUE.
CHAP. IV.
are increased, such portion of them can be used as
he expects to retain for any certain length of time ;
or if, on the other hand, values are drawn out, the
supply of cash applicable to loans would be so far
lessened. It is only by accretions and diminutions
arising in this way that the aggregate of capital in
bankers' hands can be affected. It is not by any
recondite theory that we conclude that it is not
changed by cheques passed through the clearing-
house. Simple arithmetic compels the belief that
if A pays B's cheque into his bank account, and
the sole consequence is that just so much as is
deducted from B's balance is added to that of A ;
the aggregate cannot be changed. And as, further,
we do know by ample experience that vast pay-
ments for state and other loans, for the purchase of
large properties, for the settlement of such un-
expected difficulties as have just been referred to,
and so forth, are arranged by means of cheques so
passed, the inference is irresistible that a readjust-
ment of the resources actually within the limits of
banking capital is found adequate for all these pur-
poses. But we know also that capital is constantly
being consumed, and must as constantly be re-
placed. It is not to be supposed that this vast con-
sumption and reproduction maintains an absolutely
perfect equilibrium, leaving an unchanging balance
held in anticipation of future wants. We must
look outside the great adjustments of the clearing-
house to find how this aggregate may be affected.
If payments are made by or to a bank in
CONDITIONAL OWNERSHIP : CREDIT ; BANKING.
263
notes or coin, although they do not for the
purposes of this agreement signify " cash " any
more than a cheque, its balance is so much the
greater or less without a corresponding change in
the total held by any other bank, and thus, and
thus only, can the aggregate of balances be changed.
The well-known fact that transactions of this kind
are generally much subdivided and comparatively
small, serves as an incidental proof that true gain
and loss is, and can be, made only by gradual
savings, and by the gradual increment of produc-
tion over consumption. Very little reflection is
indeed required to show that it is in this way only
that the ultimate success or failure of our various
euterprises is tested and proved. Special industries
may be stimulated by means of borrowed money :
say, for instance, the iron trade for railways. The
casual advantage will at once be shown by an
increase in a much subdivided outlay as far as that
stage of the work is concerned. But if the railway
is not wanted, a reaction surely follows, and many
who have indirectly spent their money in paying
for useless rails must not only curtail their daily
expenses, but also afford diminished support to
productive industry by withdrawing their " money "
from it. There is a very generic difference between
the way that money's worth may be thus lost or
made, and the way that individuals may gain what
others lose by the mere fluctuation of prices.
15. In referring to the calls made upon our finan-
cial resources for such undertakings as railways,
CHAP. IV.
Made only
Ly gradual
savings.
"Crea-
tion " of
capital.
264
MONEY AND VALUE.
CHAP. IV.
Foreign
loans.
manufacturing companies, or even foreign loans,
financial statisticians commonly use the phrase
" capital created." The words may convey a mean-
ing which is sufficiently well understood ; but that
we may more clearly see what is actually done^lctT"
us take the case of a foreign loan, and, trace in
general terms what has to be effected in order to
carry out such an operation. No government can
be supposed in reason to want to borrow and pay
interest for " purchasing power," unless it is able to
make some speedy use of it. It 'requires and ob-
tains the immediate use of capital already made, or
at least to be forthcoming as the instalments in
which the loan is payable may become due. So,
that which is said to be " created " must be under-
stood as being already made, and the fact of its crea-
tion only implies that a ready mode has been found
for its expenditure forthwith ; presumably, however,
in some connection with labour which is to be made
productive. It may perhaps also be regarded as
" fixed capital " yielding periodical interest. In
some way or other, substantive value has to be
delivered either in the foreign country itself or in
such places as the borrowers may determine.
Whether materials of war or materials for the
productive enterprises of peace are required, they
are alike obtained under the condition that lenders
are to be found who can afford the means to pay
for such things at once in consideration of receiving
an annuity or dividend hereafter. As far as regards'
the security for the ultimate fulfilment of the
CONDITIONAL OWNERSHIP : CREDIT ; BANKING. 265
stipulated conditioos, it may very nearly concern
the lenders to know what kind of uses their capital
is to subserve. A new country, rich in natural
resources, may benefit greatly by the immediate
use of capital judiciously applied, even though the
advantages of the works made by its aid are of
a very general nature. The increased wealth of the
country, and its consequent ability easily to bear the
additional taxation required out of that general
increase, may be as good a security as a lender
need desire.
But in any case that which has to be done in the
first instance is the same : a comparatively large
amount of value has to be immediately transferred,
which comes back only by slow degrees. We can
no more tell in detail how this work is done than
we can describe how this great city of London is
daily supplied, without its being the special business
of any one in particular to look after its require-
ments. But that it is done we know full well.
Nevertheless it would be an entire mistake to
suppose that such financial operations as result in
thus placing value in substantive form at the dis-
posal of others, and especially of a foreign country,
could be carried out if the high organisation of
banking agency did not facilitate an infinite variety
of adjustments by means of which the labour and
burden of the work is distributed. Actual value
can only be transmitted from one country to another
in substantive commodities having in some way a
value in exchange. Traders' bills are based upon
CHAP. IV.
Foreign
banking
agencies.
266 MONEY AND VALUE.
CHAP. IV.
the value of such products as they become vendible
at the place of payment. Bankers moreover are to
be found throughout all Europe, and indeed in every
country where commerce is active, who again gene-
ralise these values. They deal habitually in bills
of exchange, using their own capital, and credit
obtained partly by the sale of their own bills in
different quarters, to mitigate the fluctuations which
may arise in the ordinary course of trade ; and
extending their operations into every place where
industry can take root and flourish. It is impossible
to trace all the adjustments that can be made by
these means in support of any operation conducted
by those whose names command financial confidence.
It is easy to see that if a man who had lent money,
say to a Baltic merchant, were suddenly to with-
draw his support, on the ground that he could do
better for himself by lending it to the French
government, a most injurious dislocation of credit
would be the result. Indeed a probable reply to
such a demand would be, "You cannot possibly
have your money until I can sell my commodities."
But, generalised as values are, any one who desires
to subscribe to a loan draws, as it were, the bucket
of water to which he has a right, not from any one
particular stream, but out of the general reservoir,
and no violent disturbance of its level can ensue.
But large loans imply the withdrawal of many
bucketsful, and if the aggregate withdrawal exceeds
the available surplus, the deficiency is shown on all
sides. If the capital seeking employment is thus
CONDITIONAL OWNERSHIP : CREDIT ; BANKING.
267
absorbed, the terms of credit at once indicate that
instead of owners of cash seeking investments for
it, borrowers have to offer better terms to those on
whose support they depend ( 6). This may be
shown in two ways. The price of current loans, i.e.
the rate of interest, rises, and the price of the special
loan tends to fall, especially if unpaid instalments
due upon it throw upon the holder the obligation
of finding farther capital. Under these conditions
further adjustments may take place. The conduct of
a large loan will only be undertaken in some large
monetary centre ; but if the amount subscribed is so
great as to make money scarce and raise the interest
on current loans, every banker in connection with
it has a new inducement to send " money " for
temporary investments, which might very probably
be used in the discount of ordinary trade bills. So
that a money market in this condition gets just what
any solvent trader may obtain, who is engaged in
an undertaking rather in excess of his immediate
resources, that is, time, during which readjustments
may be made and the surplus of production be again
accumulated. No system of interchange can do
more than this. Not all the money in the world
can make a bad undertaking into a good one by any
jugglery of finance ; but hardly any limit can be
assigned to the resources which may in this way be
made available from all sides on any reasonable
occasion.
16. From very early times such work as this has
been done by means of bills of exchange. The
CHAP. IV.
Foreign
exchanges,
268 MONEY AND VALUE.
CflAP. IV.
wonderful increase in the security and facility of
transit have only given scope to the development
of a system which began with the earliest ages of
commerce, and here also it is only the ultimate
differences which have to be adjusted by that
common medium of exchange which possesses an
independent value of its own. A reserve of pur-
chasing power in the form of bullion must be held
in every country ; and the mode in which it regu-
lates the course of international exchange may very
briefly be shown. Just as every individual account
must in some way or other be balanced, so it is
with every country. After all possible sets-off
have been made, some surplus or deficiency will
usually remain. One of the chief fallacies of the
old " mercantile systems " arose from the amazingly
profound ignorance and narrowness with which this
truism, for such it really is was interpreted.
The economists of the day looked only to the
direct transactions which they could trace as be-
tween one country and another, never recognising
the plain fact that if A owes B a debt it is as
effectually discharged by payments on B's order to
C, D, and E as in any other way, which, provided
always that A can send value to C, D, or E, more
easily than B can do himself, will be the course
naturally adopted. As far as the conditions of
any trade can be broadly defined, nothing can be
more obvious than the process. The inter-relations
of very numerous industries are more complex, and
the possible adjustments are so numerous and so
CONDITIONAL OWNERSHIP : CREDIT ; BANKING. 269
delicate, that this branch of banking naturally be-
comes a special study, but the essential simplicity
of the principle remains the same. The state of
politics, of the harvests, of the prosperity or decay
of industries in all countries, especially concern
the international banker. Local difficulties are
usually met by local resources, but any unusual
strain upon them may call for a transmission of
substantive value from one country to another
which must affect more or less the rates of
international exchange.
It is only after all expedients have failed for the
adjustment of the values to be interchanged that
trade falls back upon its reserve. The way in
which it comes into use is this. In every centre
of trade, bills of exchange are offered for sale,
drawn, let us say, on London, promising value to
be paid there, generally some months after the
time of sale. For the sake of clearness of analysis
and illustration let us, in the first instance, suppose
these to represent commodities sent to London to
be sold there in order to realise the value indicated
on the bills ; and further, that the buyers of these
bills are those who, having received and sold com-
modities from London, do not themselves desire to
send back the equivalent in other commodities, but
merely to return value in the general terms of
money, i.e. in pounds sterling. These are very
ordinary conditions of trade. Now if the value
of bills offered which of course indicate conversely
substantive value sent in the opposite direction
CHAP. IV.
How regu-
lated by
bullion.
270
MONEY AND VALUE.
CHAP. IV.
may be represented as 100 and the value required
as 102, the only possible adjustment is that the bills
must be bought at 2 premium. As French money
is expressed in francs, German in marks, the United
States in dollars, &c., the fact cannot always be
stated in so simple a form ; but the " par " of ex-
change given as francs 25'22j, marks 20'43 per
sterling; or 4s. l^d. per dollar, indicates nothing
more than equal weights of gold of any common
standard of purity. The sole difficulty arising from
such differences in terms can be overcome by any
practised clerk in a very few moments, and it is
idle to talk of them as any obstruction to trade
of this description. But the proportional difference
is based on a fact which cannot be got rid of, and
appears equally in the quotation of exchange from
our Australian Colonies, though their sovereign is not
only taken as identical with ours, but is actually
a legal tender in this kingdom. Where the legal
currency of a country is in inconvertible paper the
price of gold in such paper is in reality, if not in
form, taken as the basis of the calculation. So also
if exchange has to be arbitrated between one
country with a gold and another with a silver
standard, the estimate of the price of one metal
in the terms of the other forms a shifting item in
every transaction. The work is of the same kind,
though somewhat less cheaply and accurately done
in such cases.
The assumed difference of two per cent, being
primarily apparent, we may now suppose bankers
CONDITIONAL OWNERSHIP : CREDIT ; BANKING. 271
to coine in ; they are, in fact, rather the first than
the last in the field, but their special function may
best be thus separately considered. At so high a
premium, they will naturally desire to sell bills,
provided either that they expect to buy trade bills
on the spot on better terms hereafter, or that with
the cash they receive for their own bills sold on
London, they can buy other bills on some other
place, and with the money there received, buy bills
on favourable terms to be sent to London to be set
against their first drawings. Bills for this purpose
will be bought and sold, not only in one, but in
several places successively, provided that an ulti-
mate advantage is shown, and some slight margin
in favour of the banker secured on the amount
thus indirectly remitted over the amount directly
drawn in the first instance upon London.
But if we suppose that gold can be sent to
London at a cost, including all indirect and inci-
dental charges, of one per cent., the banker would
never expect to sell at so high a premium as two per
cent, for the bullion market is practically open to
all, and some at least of the traders would take
gold, which could be transmitted at a cost of one
per cent., sooner than pay double that charge for a
banker's bill. If only one hundredth part of the
demand for bills is superseded in this way, the
natural arbitration of exchange brings down the
rate to the equivalent of that to be secured by
the transmission of gold. So likewise, mutatis
mutandis, no one would sell a bill for 100 on
CHAP. IV.
272
MONEY AND VALUE.
CHAP. IV.
Extended
inter-
changes of
capital
thus made.
London at so low a rate as 98, but in preference
would direct his London agent to send him gold
which, after paying the one per cent, for charges,
would give him 99.
Practically, therefore, in dealing with bills of
exchange the banker's range is limited to two per
cent., i.e. from one per cent, premium to one per cent,
discount, and only when no further adjustments
of value can be effected, directly or indirectly, will
these extreme points be touched, and gold be
actually transmitted from place to place ; and then
only to an extent sufficient to reduce the diver-
gence in the rate of exchange within these limits ;
for as has been repeatedly shown, there can be no
direct profit made by dealing in bullion.
The resources of banking are very inadequately
xemplified by the case supposed. International
dealings in stocks, for instance, afford scope for
operations which are very large as compared with
bhe value of the income derived from them ; or,
to put the point with more regard to the exigencies
of the arbitration of exchange, dealings in such
stock may often be made with less adverse effect
against the operator than dealings in the current
values of bills representing the transmission of
merchandise. Thus, if London, having funds in
Paris, buys an amount of French Rentes, just
so much value is left there, Iqss only the periodical
income payable upon it. It remains merely as a
debt till other needs arise. London may thus
get interest for its capital instead of dead bullion,
CONDITIONAL OWNEESHIP : CREDIT ; BANKING. 273
which it does not require. Such Kentes, or, " the CHAP. iv.
funds," are, however, somewhat uncertain as a
banking security : for the market price of them is
liable to fluctuate ; and the value of securities
payable in current money within some limited
period can be more precisely estimated. Hence
good commercial bills are pre-eminently the security
most in favour with bankers, and it may further be
noted that the cause for this preference, which is
so well justified by experience, lies partly in the
fact that behind them, as a rule, there are the
commodities which are required for current use
and consumption. Even if prices are depreciated
by excess, time thus is ever tending to restore
the due proportion of supply to demand. No
such process of necessary consumption aids the
price of shares or stocks, which depends there-
fore more exclusively on mere opinion, or on
the surplus left for the purchase of such pro-
perty after the satisfaction of more pressing
requirements.
International bills of exchange are also largely
used as a means of obtaining credit. Thus a banker
in London may draw on Paris, and, when his bill
is due there, may draw on Berlin, and so on. Such
bills form a special commercial currency, their
amount is limited to the sum which the general
body of traders can afford to hold in circulation,
and the gain of course depends in the long run on
the uses to which the " money" so obtained is
applied : i.e., as a rule it is lent in support of
274
MONEY AND VALUE.
CHAP. IV.
Uses of
metallic
money the
same as
those first
indicated.
commercial enterprises, earning a profit which can
be shared with the lender.
International trade is naturally concerned rather
with the transmission of products fitted to the use
of other countries than with the preparation of
such products themselves. These ultimate results,
therefore, come to be represented by documents in
forms easily transmitted, and in currently vendible
forms. The service done is specially the adaptation
of supply to the time and place where demand
requires satisfaction. Eegarding this adaptation as
an essential condition of utility, the rationale of all
this machinery of international bills of exchange is
evident. Bullion here also, as a common measure
of value, keeps the terms of every transaction upon
a certain and intelligible basis. But, as the in-
timacy of commercial relations extends, so will the
capital of the world become more completely gen-
eralised, and the great law of average be more
effectually applied to equalise the fluctuating
surplus or deficiency which arises in each one of
all the centres of industry which can thus be
associated together.
17. In the early part of this Treatise it was
shown that the primary use of metallic money was
to serve as a reserve of purchasing power, to be
used only in compensation for the natural in-
equalities of production. And further, that, as far
as trade consisted : as for the most part it does
CONDITIONAL OWNERSHIP : CREDIT ; BANKING. 275
and must always continue to consist of the inter-
change of property and commodities of various
descriptions, the secondary or inferential use of
such money as a common measure of value might,
to a considerable degree, be superseded by means
of tallies or substitutes of different kinds, though it
is of very great importance that they should be
maintained at the same value as, and be inter-
changeable at will for, the standard weight of the
precious metal which they purport to represent.
The review of the most highly-developed system
of commercial interchange shows that the uses of
metallic money are essentially the same as those
first indicated, theoretically. But over and above
any system of tallies which can be used to repre-
sent metallic money, or even money in any way
vested with an intrinsic general purchasing power,
we have had before us a system for facilitating to
the utmost extent the interchange of values of all
kinds.
It will have been observed that, not only are the
values of all commodities which can be made avail-
able for current use set the one against the other,
but, further, in the more stable and civilised
countries, "capitalised" property, representing the
present value of products to be yielded in the
future perhaps in many future years is also
brought into the circle of international adjustment.
The tendency of the peaceful development of
civilisation and mutual confidence is to make these
means yet more fully available for this purpose,
T 2
CHAP. IV.
276 MONEY AND VALUE.
CHAP. IV.
except of course in the case of bullion-producing
countries ; but with the increase of general wealth
a comparatively large value of the precious metals
may be retained for their customary use as money,
and any lasting change in their purchasing power
can only be effected by influencing the vast aggre-
gate of demand and supply for them throughout
the whole world.
GENERAL CONCLUSLONS,
I will submit only very briefly in conclusion
some further remarks of a more general nature. I
have endeavoured to show the conditions upon
which value in exchange is based how on the one
side the quantity of labour necessarily employed
governs all value of this kind which can be con-
tinuously maintained, and with this quantity of
labour is connoted the consumption required for
the support of the labourer ; there is on the other
side the value in use to the consumer or, to
express the relation more adequately, to all men as
consumers which value must depend upon the
demand which they can, and actually do choose to,
GENERAL CONCLUSIONS. 277
make effectual. Hence, from the calculation oJ
value in exchange will be eliminated (a) the cost
of labour needlessly employed on any act of pro-
duction, and (b) on the excess generally of any
production, however necessary may be the thing
produced, beyond the requirements of consumers
(III. 22). And similar reasoning applies also to
services rendered. This process of reciprocal ad-
justment and adaptation is constantly going on,
and is most effectually accomplished where free
competition is neither restricted artificially nor
thwarted by dishonest artifices. Into the defence
of the principle of competition I need not enter at
length. The practical tests which are the result of
it are as needful in material matters as is free
discussion in the world of thought and of politics.
Both are liable to similar abuses. False work,
misapplied, wasteful, and slovenly work, perverted
statements of fact, bad logic, confused and reckless
argument, are equally sins against truth, the best
interests of which are not the less bound up with
the full knowledge and varied experiences which
only such freedom of action and of thought can
adequately afford. Work and the capacity for work
must be proved, and the right of each man to offer
the best he can afford on the one side, and to
select that w r hich most fully satisfies his own
wants on the other, must be fully accorded as
the basis of justice on which an organisation of
free men can be developed, subject to no other
restrictions than those which are, in fact, required
CHAP. IV.
278
MONEY AND VALUE.
CHAP. IV.
to insure the impartial application of these principles
to all alike. 1
The means by which the aggregate resources of
the country are mobilised, so as to be adapted in
an innumerable varietj 7 of ways to the ultimate
production of such things as society effectually
demands, have also been referred to. The me-
chanism of interchange is admirable ; the very
attempts to simulate its processes serve only by
their speedy failure to prove the stability of the
basis of credit on which the industrial fabric rests.
It is not within this mechanism regarded as a
means to give effect to the choice practically made
by those who avail themselves of it that remedies
are to be found for the evils which afflict the body
politic, but by action of a far wider and deeper
kind brought to bear upon the wills, desires, and
capacities of its several members. Nevertheless
while no good work can ever be done by the mere
manipulation of money, infinite waste, mischief, and
confusion may arise from any falsification of it.
Hence the importance attached to the preservation
1 No better practical rule can be cited to prevent freedom from
degenerating into license than the time-honoured maxim
r " Sic utere tuo ut alien^m ladas; " *Uw- tiff* /
and this sole restriction on our own rights must be applied not only to
what we do, but also to what we abstain from doing, by which the
interests of others may be affected. To this may be added one more
pregnant dictum from the same source
" Non omne quod licet, honestum est"
The great masters of jurisprudence did not hold him " honest " who
acknowledged only the sanctions of the law as indicating the extent of
his social duties.
GENERAL CONCLUSIONS.
279
of the integrity of the currency and of all symbols
of value represented in the terms of money. Any
attempts to overlay and obscure, by any juggle or
mystification of finance, the indications which it
affords, tend to the advantage only of those who,
however refined may be the methods of their
operation, can only be included among the preda-
tory classes of society. Still, an ignorant credulity
is ever ready to believe in the magical production
of wealth, and the alchemy of past ages is suc-
ceded by currency nostrums of various kinds in
the present. All delusions of this nature lead to
incalculable loss, not to be measured only by the
expectations which are stultified, but also by the
consequent diversion of energy from objects of
rational utility. It is not the mere mechanism,
but what is done with it, and especially what are
the limits of its powers, and to what extent its
utility can be made available, that we have ulti-
mately to consider. The very perfection of the
system within its legitimate range is apt to hide
from us some of the considerations which are most
important for our social well-being, rigorously con-
ditioned as it is on the one side, yet possessing such
abundant latitude of resource on the other.
I venture to invite consideration to the results
of industry distinguished as " necessary " or
"optional/' rather than as "productive" or "un-
productive " in any material sense. No one denies
that there are many services, which, though not
" productive " of wealth in any form, are yet
CHAP. IV.
"Neces-
sary " and
"optional"
produc-
tion.
280 MONEY AND VALUE.
CHAP. IV.
peremptorily needed to satisfy the primary wants
of mankind, so that the consumption required to
support those who render them must be regarded
as indispensable ; while many material products
which, as having exchange value, are practically
accepted as utilities, satisfy desires only of a most
capricious and transitory character. It is true the
distinction suggested cannot be accurately defined,
but though indicated only in general terms, the
very discussion of these terms is pregnant with
issues of the greatest practical consequence.
The conditions with which we have to deal,
especially in a highly organised system of industry,
are that the labour of a part of the community is
fully adequate to satisfy the primary wants of the
whole (III. 11 and 14). In other words, the con-
sumption of those so engaged is reproduced with a
greater or less increase, which, being in excess of
their own wants of this kind, can only be utilised
by supporting others, who can only come into the
circle of industrial cooperation by rendering ser-
vices of some other kind. Much labour must in
the nature of things be devoted to the production
of commodities which perish in the using. What
proportion of the energies of a country must be
used subject to necessities thus imperatively or-
dained, depends upon the resources, both natural
and acquired, which are at its disposal. Hence
the inherited and trained skill of workmen, the
habit and power of conjoint labour, the growth of
laws calculated to give freedom and security to
GENERAL CONCLUSIONS. 281
industry become the most important factors of pro-
ductive power, and speaking even on purely
economic grounds, the first essential of prosperity
is rather to secure this ample power of reproduction
than to restrict consumption, or even to embody the
results of labour in material objects of permanent
utility.
Beyond this it was truly taught ages ago that
the " object of labour is to secure leisure " not for
slothfulness, but to devote to such progress and
such enjoyments as life can yield ; and whether,
and how far, in this sphere, the results achieved
may be clothed in material form is altogether a
subordinate and casual consideration. Leisure also
has its economic alternative. It must be duly
correlated with labour, but in it reside potentially
all that makes man thrive, and enables him to rise
above the level of the savage. According to the
use made of the option thus afforded, nations which
have once emerged from the first struggles for
existence stand or fall, and assume the character-
istics which distinguish one race from another
Social science if restricted by the usual definitions
of political economy may indeed be the philosophy
of the sciences in relation to the material pros-
perity of the State, but is debarred from dealing fully
with the higher problems both of labour and of al
its ultimate results. For the reasonable test of that
prosperity is the ease with which necessary pro-
duction is provided for, and the highest gain may
be conceived of as the greatest balance of energy
CHAP. IV.
282
MONEY AND VALUE.
CHAP. IV.
Economic
conditions
of this
country.
remaining to be used at the option of the com-
munity. Here other sciences take up the question.
Let me briefly refer to the general conditions
which obtain in our own country. Dealing as we
have to do with highly generalised conditions, we
must perforce look to concrete results with a know-
ledge and recognition of the principles which
underlie appearances, rather than attempt to follow
out in detail the processes by which these results
are obtained. The rapid increase of population in
a limited area has already forced upon us, in some
respects, rather the conditions of life in one vast
city, than those which obtain in a country which
can draw all its most needful supplies from its own
soil. 1 The import of provisions of all kinds is
large and continuous, and includes wheat enough
for the use of about half the population of Great
Britain. This has to be paid for by exports of
native produce (iron, coal, &c.), or of manufactures,
by the services rendered by our shipping, by the
interest earned on our capital employed in every
1 This factor is one of very great importance and is too frequently
overlooked. The last census returns give the population of England
and Wales for the decennial periods :
. ... 8,892,000
. ... 10,164,000
v ... 12,000,000
. ... 13,896,000
1801
1811
1821
1831
. ... 15,914,000
. ... 17,927,000
. ... 20,066,000
. ... 22,712,000
The same authority gives the population in A.D. 1600 as 4,863,000 and
in A.D. 1700 as 6,045,000.
The density of population per square mile is also given, viz. :
1841
1851
1861
1871
A.D. 1600
1700
83
104
A D. 1800
1871
153
390
GENERAL CONCLUSIONS. 283
part of the world, and iii innumerable other ways.
So completely and perfectly is the aggregate of our
resources generalised for all the purposes of industry
that it is impossible to analyse the value of these
exports, or to identify the links of interchange by
means of which products consumed are specifically
replaced. The material production of such links,
and the uses which they are made to subserve as
exchangeable commodities, form indeed the subject
of work of very different orders (IV. 4). Commerce
effects the interchange of current values of all kinds
indiscriminately, and no labour-saving expedient is
likely to be neglected in its subtly adjusted opera-
tions. We must take the results, and it matters
nothing to the argument whether a larger or smaller
proportion of the value, say of silk or cotton manu-
factures exported, has been paid for previously as an
import. Value created here is equally sent abroad,
and our imports are received in like manner, though
the cost of British exports may have entered into
the total cost of their production. It is not the less
true that we have the choice of every market in the
world from whence to draw the supplies we require
of those primary necessaries, the cost of which must
be the chief factor in the exchange value of all
products, and that we pay for these in the way
which best suits our own interests. We are fed by
the products of our furnaces, our looms and our
workshops as effectually as by our own soil.
Whether this great " natural agent " is, or is not,
used to the best advantage, is a very important
CHAP. IV.
284 MONEY AND VALUE.
CHAP. IV.
question ; but nevertheless it is far less fundamental
than that which is now under consideration. We
must, and safely may, so far take for granted that
the production connoted with necessary consump-
tion is well adapted to the ends desired ; and
the process which primarily concerns us is that
from necessary consumption to the replacement of
that consumed : the difference between the two
being that which is available for the support of
other labour, the application of which is largely at
the discretion of the nation considered generally.
We may take it for granted, I say, for the purposes
of this argument, that all the interchanges involved
are fairly and reasonably made as far as they are
made at all ; but it does not follow that they are
adequate to all the conditions that we should desire
to see fulfilled in the body politic in other words,
that all are brought within the circle of independent
and self-supporting industry, who might and ought
to be included within its limits ; or that the large
portion of our resources, the disposal of which
depends upon the exercise of a voluntary discretion,
is most wisely and beneficially employed.
It were a waste of time to enter upon proofs of
the wealth of this country, or the extent to which
surplus labour is devoted to production which can
in a very large degree be modified at will to suit the
changing demand of those who can make their
demand effectual. The returns of our foreign trade
give ample indication of this, and, being published
in clear and exact form, naturally attract special
GENEKAL CONCLUSIONS. 285
attention, but the strongest proofs probably lie at
home, and there can be no doubt that domestic
enterprise has benefited still more largely by the
margin for optional labour secured directly and in-
directly by free trade. 1 Indeed there seems to be
some reason to think that the relaxed rate of pro-
gress which has lately been shown in our foreign
trade is in some measure owing to conditions of our
home industries by no means unfavourable to the
interests of the community at large. And be it
remembered that though the due supply of primary
necessaries is an essential condition for the produc-
tion of wealth, it does not in itself constitute
wealth ; although all that can be fairly so termed
or the leisure which may be the equivalent of it is
materially based on the excess continuously pro-
duced. The fact of wealth accumulated in perma-
nent forms proves that this condition has been
fulfilled. That it still subsists is proved by the
capacity of the nation to employ continuously a
large portion of its resources upon objects which,
as far as any immediate pressure of want is con-
cerned, might very well be dispensed with alto-
gether ; and, further, by the existence of a large
amount of capital which is constantly seeking for
employment. That is to say there is a large
i Mr. Brassey, in his Work and Wages, states that what are termed
the building trades support as many labourers as those maintained in
the three great industries of cotton, wool, and flax manufactures. It
is difficult to trace this result exactly in the census returns, but the
large numbers engaged in domestic industries are very strikingly shown
in them.
CHAP. IV.
286
MONEY AND VALUE.
CHAP. IV.
Concur-
rent
wealth and
destitu-
tion.
power immediately available for purchasing that
which will support labour calculated bo yield results
of more or less permanent advantage, or to await
for compensating returns hereafter perhaps in a
comparatively far distant future.
Now if our commerce secures us an abundance of
natural agents, and makes good the deficiency of
the necessaries of life which our own soil cannot
yield, on terms which admit of the rapid accumula-
tion of wealth and of capital ready to be applied to
the support of labour which can in any way be
made serviceable, how is it that there are many
who want to work, and yet remain on the verge of
destitution ? The want felt in the midst of plenty
clearly does not arise from any scarcity -of necessary
products, but from the inability to earn wages to
give in exchange for a share of them.
Here is the sharp contrast between superabund-
ance and destitution which must be looked in the
face. What is the remedy for the evil ? The reply
at once suggested is, " A more adequate distribu-
tion." True. But let us see what a more adequate
or more perfect distribution implies and requires.
I have already explained (TIL 12 14) how the
wealth of the rich must inevitably go to the sup-
port of labour, and that, to put the case in an
extreme form, the mere substitution of almsgiving
for expenditure on products or services in them-
selves superfluous, would only perpetuate a race of
paupers to the detriment of comparatively inde-
pendent workers, and further, that however capri-
GENERAL CONCLUSIONS. 287
cious may be the choice by the wealthy of the
objects for which they will pay, the ultimate equa-
tion of wages received to the total value expended
in this way, is a matter quite beyond any indi-
vidual control. However much there may be to
deprecate in the manner in which our optional
production is governed, production implies distri-
bution on some terms. Money must be spent in
order to enjoy its fruits, and no mere volition on
the part of the wealthy can increase or diminish the
total amount which they have to spend. If this
amount be inadequate when divided among the
numbers wanting wages, are we therefore driven
to the conclusion that the population has already
exceeded the limits which can be supported in the
country ? The question is a grave one : for large
numbers, fitly maintained, mean the power and
strength which only will enable this kiDgdom to
maintain its position at the head of a mighty
empire.
If the increasing cost and scarcity of the primary
necessaries of life were the cause of the distress
experienced, it would be useless to deny that this
insuperable difficulty must be met by a reduction
of the numbers which had to be supported, but it
is clearly shown that this is by no means the state
of the case. The classes who minister to the wants
and pleasures of the wealthy are, speaking gene-
rally, among the most thriving in the community
Naturally those are preferred who can do the most
acceptable work. Behind them lie many others
CHAP. IV.
288
MONEY AND VALUE.
CHAP. IV.
Distribu-
tion.
Eadical
fallacy of
"mono-
poly."
far less favourably circumstanced, and behind these
again those whose work or services no one seems to
require. So we have a residuum, who, though but
poorly provided for, are still supported at a mini-
mum of direct cost, yet are a burden on society
because they contribute still less to the general
stock or to the general convenience. With many
wants to be supplied, there is yet the cry of "no
work/' Why should not those thus supported, but
thrown out from the circle of industry, work for
one another ? The suggestion sounds almost like
cruel irony, yet the germ of the only remedy
adequate to the extent of the evil lies in it, even
if we only get back the hopeless reply that no work
remains to be done which they are capable of
doing. The demand for unskilled labour is neces-
sarily limited in any community where industry
is highly organised (III. 9), and the society which
suffers -its members to grow up merely as unskilled
labourers must pay the penalty of its shortcomings.
Yet even here there is some mitigation, for there
are many swamped in this class who might yet with
some rightly- applied help be able to struggle out
of it, to the benefit both of themselves and even
of those whom they left behind.
The popular remedy, especially among the com-
paratively favoured classes, for any distress arising
from a depression of prices is "protection," dis-
guised perhaps as merely " a restriction of undue
competition ; " which on examination will be found
to resolve itself into this absurd anomaly : Because
GENERAL CONCLUSIONS. 289
there is a want of commodities against which
commodities can be exchanged all trade being
ultimately an interchange of commodities there-
fore reduce the supply of commodities. Unless
all the wants of all the community are fully
satisfied, over-supply means in fact a supply
which has no exchange value because it can find
no counterpart. If the aggregate supply of any
product loses its value because, as far as it is in
excess of a decreasing demand, it wants utility, the
obvious remedy is to diminish the supply, and
apply the labour set free to other production : the
capital for its support is certainly already in exist-
ence ; so also is the power of purchasing the finished
product without any new augmentation of either.
But if a fall in prices consequent on a reduced cost
of production is met by a corresponding increase
of demand, there is an absolute gain in the
increased supply of utilities, for although those
immediately engaged only receive as much as
before, the actual value of wages to all consumers
is increased, inasmuch as they can get more of what
they require. Those who advocate restriction read
falsely and imperfectly the indications afforded by
money, for it is useful only as a purchasing power,
and high prices, thus artificially maintained, mean
simply low purchasing power. Money measures
only relative cost : relative utility can only be
estimated by a well-reasoned comparison of results.
No one doubts that a monopoly may secure to a
class or to an individual a relative advantage, but
CHAP. IV.
290
MONEY AND VALUE.
CHAP. IV.
that requires not only the monopoly of one kind
of production, but that all, or at least most,
other kinds of production shall not be subject to
any such restriction. There must be a monopoly
of monopoly itself to make it of any effect, for a
system under which all strive to get as much and
give as little as they can, obviously must end in
the impoverishment of all alike. Legalised mono-
poly is legalised robbery and extortion as against all
consumers, and a combination of any one class to
secure to itself special and exclusive advantages is
a declaration of civil war against the community
at large. That men engaged in the uncertain
issues of trade should prefer high prices and large
profits to low prices and perhaps heavy losses is
perfectly natural, but not the less are " cheapness
and plenty " the essential conditions of permanent
and general prosperity.
There moreover is a far greater advantage in the
freedom of industry than any which can be ex-
pressed in the terms of capital conceived of as a
fixed quantity. The facility of applying labour to
new forms of production is the great incentive for
saving capital and applying it to new adaptations
of reciprocally beneficial industry. It is not so
much by elaborately devised schemes, as by in-
numerable small experiments, by expedients known
only to those intimately acquainted with varying
minor local considerations, that the circle of inde-
pendent and self-supporting industry is enlarged.
The reduced cost of living puts the power of saving
GENERAL CONCLUSIONS. 291
capital within the reach of many who can best feel,
or have felt, their way to using it to advantage.
This no doubt implies changes, and it is impossible
to say that some may not casually suffer from them.
Dangers and difficulties of this kind were urged as
against free trade with foreign nations by those
whose sole notion of supply was limited to that
passing through their own hands. They are now
urged again, with even less reason, against the free
circulation of labour in domestic industries. But
if we are well assured that the common reservoir
is increasingly filled, it is needless caution to insist
beforehand on knowing the precise means by which
the necessarily consequent overflow is to be drawn
out. There seems to me no room to doubt that the
benefits which have arisen from the freedom of com-
merce are small and insignificant as compared to
those which would accrue from the unreserved
adoption of the same principles by trades unions
and all who have any influence in the direction of
labour. The want acknowledged on all sides is of
a wider distribution, which can only be attained by
giving the fullest scope to that work of adaptation
by which mutual work and mutual wants can be
extended and co-ordinated.
It may perhaps be urged that free competition
will lead to low wages and to the increase only
of profits. Were capital a fixed quantity and
employers the sole owners of it, there might indeed
be some casual danger of this result ; but generalised
as it is, its distribution cannot be restrained from
u 2
CHAP. IV.
292
MONEY AND VALUE.
CHAP. IV.
any uses which will satisfy the terms on which
credit is usually granted, in other words, from any
uses which any of the dispensers of it are assured
will be reproductive. With a flowing tide of
accumulating capital no difficulty can reasonably
be apprehended on this score. Even if it were so,
the accumulated profits must at the least afford
new employment for new labour, which will re-
adjust the balance of demand for it, and that with
the less difficulty if labour be not in any way
restricted from adapting itself to the change of
production required. So also as regards the argu-
ment that cheap prices benefit the rich : they must
needs do so for they benefit all alike, but only on
like conditions. But whenever industry can acquire
vigour and freedom of action, both profits and
interest, regarded as modes of remuneration, tend
surely to a minimum, and do not under any
circumstances necessarily imply a superior or still
less an exclusive power of accumulation (IY. 4-6.)
We may go further, and say that all forms of
remuneration tend to an equality under the in-
fluence of free competition, remembering always,
however, that this competition to be valid must
imply a capacity effectually to do the work com-
peted for. Nothing can be more inane and futile
than to cry out for special remuneration of any
kind without acquiring the skill or undertaking the
cares and responsibilities of the work associated
with it. In short the natural laws which favour
such a equalisation are so irresistible that they are
GENERAL CONCLUSIONS. 293
only to be thwarted by that diminution of pro-
duction which the mistaken policy of restriction
would enforce.
So, on the other hand, little weight need be
given to the threat that capital will be sent out
of the country if not duly protected. The ex-
perience of late years has shown that its employ-
ment abroad is not so easy a task (III. 20). It
depends upon labour for its reproduction upon
competent and well- organised labour and must
come to terms with it wherever it can be found.
It is perfectly just and right that trades unions
should look after the interests of labour in all
questions which may arise as to the apportionment
of wages and profits, and that co-operative associ-
ations should fairly compete for the latter if they
deem it for their welfare to do so. But, above all,
the general interests of the public which all trade
subserves must be clearly recognised. Any one
who will be at the pains to realise how great and
varied are his own interests as a consumer, as
compared with the value of the product with
which he is individually concerned, can hardly fail
to recognise the soundness of the policy which
aims at the diffusion of industry and the general
efficiency of production, rather than grasping at
an undue share of what ? a relative " purchasing
power" as expressed in money, which the dearness
of things to be purchased renders nugatory.
The fact that the nation is so much dependent
on other countries for its supplies of food adds
CHAP. IV.
294
MONEY AND VALUE.
CHAP. IV.
The effi-
cient adap
tation of
labour.
further weight to the argument. Cheap production
will always give us a command of foreign markets,
but it by no means follows that the low rate of
living which may obtain in them will depress
wages here. The cost of production in any country
is governed by those causes which have relative
ffect within its own boundaries (II. 19). We
must come to terms with the foreigner, no doubt,
for our supplies of necessary food ; but cheap pro-
duction generally within our own borders renders a
cost of production, low as compared with that of
other countries, quite compatible with high wages
as measured in what can be bought with them. It
is only by relative cheapness of this genuine kind
that our position can be made secure. The spurious
prosperity shown by high prices is open to the
direct competition of any nation whose necessities
may induce them to resort to those markets of
supply on which we are ourselves dependent, arid
which, it may be added, though reciprocally de-
pendent, are not indissolubly dependent upon us,
for the supply of those things which they take in
exchange.
Still the adaptation of labour to the various
occupations required is a task presenting many
difficulties, which cannot be removed without some
toil and sacrifice on all sides. That new labour
cannot be supported without some fresh application
of capital is fully to be admitted, and this lesson,
taught by former economists, tells as strongly
against the merely declamatory resolutions and
GENERAL CONCLUSIONS. 295
superficial legislation which are the foibles of the
present day, as against the attempted official regu-
lation of all industry by the mere dicta of autho-
rity, which was the delusion of the past generation.
All that I urge is that the capital needed is at
hand, ready and waiting to be applied. It is
"mind," not "matter," that is wanting. It is a
problem of life, not of mechanism. To say that
things must be left to take their course, and that
we cannot alter the law of demand and supply, is
either to assert that the quotient cannot be altered
if the figures remain the same, which is a truism
hardly worth reiterating ; or to imply that the
factors themselves cannot be modified, which is
mere abject fatalism. If no change can be shown
in the effects the inference is irresistible that the
causes have not really been modified, whatever
amount of dilettante enthusiasm may have been
brought to bear upon them.
As far as the condition of the masses of our
population has been ameliorated, the results shown
are valid tests of the efficiency of the means used,
but their imperfection is not a proof that the ends
desired are unattainable. No branch of enterprise
ever yet was opened up which did not involve
some loss and disaster to the early adventurers,
and some persistence, in spite of difficulties, may
well be urged in favour of attempts to introduce
new industries, or a better organisation of in-
dustries, which may help to develop a wage-
earning power, especially among the poorer classes.
CHAP. IV.
296
MONEY AND VALUE.
CHAP. IV.
As far as such industries can acquire the support
of this class the fresh wages earned and expenses
lessened by improved production are indeed a
doubled gain.
I have insisted much on the abundance of capital
in this country. Probably no nation has or ever
had so great a command of this necessary element
of production. But it is well to keep in mind the
relative force of words, and, when we speak of
supporting labour by capital, to show how neces-
sary it is that that labour itself should speedily be
made self-supporting. The estimate of our total
annual expenditure has been given (IV. 12) as
at least about 1,000 millions. The whole capital
that could be raised, even in this superlatively
rich country, is small as compared with such a
total, and would not represent more than the outlay
of a few months ; or, to put the point in another
light, this minor sum represents all our purchasing-
power which is not already appropriated to definite
objects of conventionally recognised utility. These
estimates are vague enough, it is true, but the
proportion roughly indicated does serve to show
in a striking manner how palpably impossible it is
to raise the condition of the poorer classes gene-
rally without raising also their power of labour.
Nevertheless, I repeat that our available capital
is most ample for all the purposes which it can
possibly subserve, for true work can only be
accomplished by those gradual processes which
nature requires in every field of development.
GENERAL CONCLUSIONS. 297
But there is no room for waste. The resources
which can be applied optionally are far less than
those the application of which is restricted by the
imperious necessity of satisfying the primary needs
of the community. Endowments wasted or public
funds misapplied cannot be regarded as a matter
of little consequence even to a wealthy country.
They may apparently form a small part of its total
expenditure but bear a far larger proportion to the
means which can be devoted to higher aims of
public utility.
Very homely truths have to be urged in treating
of the condition of those dependent on precarious
wages, eked out perhaps by alms, for their meagre
sustenance. The attempt to bring them into con-
nection with luxurious expenditure is hardly to be
commended, though the ostensible show of wealth
seems to point out this way as the most easy
solution of the problem. But that demand is
already made fully effectual, and the extension of
it can only follow a further increase in the aggre-
gate profit accruing to the richer classes. The
interchange of commodities of ordinary use, and
which satisfy commonly felt wants, rests on a far
more secure basis than any which can exist where
the demand on one side is governed by mere favour
or caprice.
The first beginnings must be made by the aid of
thrift. I use this word in preference to "parsi-
mony," for it is a fuller term, and implies that, and
more also which is much to the purpose. It is not
CHAP. IV.
Thrift.
298
MONEY AND VALUE.
CHAP. IV.
Economic
aspect of
sanitation,
so much associated with the bare and somewhat
indadequate idea of saving, as with making the
best use of all available resources by dint of good
management. Parsimony is indeed quite consistent
with an ignorant and obstinate persistence in cheap,
but in reality inefficient and wasteful, methods of
working. From the want of it there arises that
vast amount of needless waste which so much
increases the expenditure required to satisfy
primary wants. A knowledge of the properties
of food ; of the laws of health ; of the art of
cooking and of clothing and other such true house-
hold economies, may not result in any immediate
saving of money, but in the far better gain of in-
creased energy and capacity both for work and for
enjoyment. Indeed the notion of getting on in
life by saving a little money " to start a shop " has
been a somewhat mischievous delusion, tending
to a superabundance of " distributors " who would
have been far better, and quite as independently,
employed in earning wages in any productive under-
taking. On the advantages and independence which
result from reasonable saving it is needless to dilate,
but it does not quite follow that it is necessarily the
first step towards amelioration.
But closely connected with this question is one
in which the owners of larger capital may be more
directly concerned. Who can venture to estimate
the waste of energy expended in fighting against
foul air, bad water supply, damp, insufficient space,
fever engendered and spread by these causes : in-
GENERAL CONCLUSIONS. 299
temperance often induced by conditions which in
turn are fearfully aggravated by its effects; and
countless remediable 'evils of the kind, both in
urban and rural districts ? To remedy crying evils
of this kind we must boldly anticipate the action
of the law of supply and demand. To provide
suitable houses, and, in town, the space for them,
requires the outlay of an amount of capital which
it would take a long time for those who need them
to accumulate., Indeed there is too much reason
to fear such a saving could never be accomplished,
crippled as they now are with the heavy disad-
vantages of most insalubrious dwellings. To create
a demand by affording a suitable supply is no new
thing in commercial enterprise. Those who under-
take such ventures often do so on the very im-
perfectly secured hope that future profits may
recompense their first losses. Moreover we have
all to buy our experiences and grow wise only by
repeated failures. Now it is just this chance oJ
being ultimately recouped for their first ill-adapted
efforts and experiments which the pioneers in this
great work may, from philanthropic motives, wisely
forego with unmixed advantage to the community
They take the first risks, try the first experiments
undergo all the incidental crosses and losses to
which all pioneers are subjected, and create the
demand by affording the most suitable supply
When this can once be accomplished the field may
be left open to those engaged in the ordinary
conduct of the trade, and further operation
CHAP. IV.
300 MONEY AND VALUE.
CHAP. IV.
thus become thoroughly self supporting. It is
the first steps which are the most difficult and
the most costly. A higher order once established
will be more easily maintained, for better work can
be done under it with less exhaustion of energy,
and experience will make its true economy ap-
parent. A more adequate standard not only of
comfort, but also for work, will thus be promoted.
Nor should it be a cause of offence that those
who have attained a position of some independence
should largely receive the first benefits of such a
movement. Why should this class be grudged an
advantage which they could not indeed obtain for
themselves without some aid, but for which after all
they pay just as much as any one who gives a fair
rent for the house in which he lives, but which he
could not afford to buy 1 By these steps progress
towards the end desired is most speedily made.
To be ready to help those who are most ready to
aid in helping themselves is surely the best way
of inculcating the useful lesson of self-help. Some
indirect benefit is open to all by the increased
supply of house room afforded, and even those
worst off may be advanced a step though not
forcibly carried over the heads of others. Help
is not less help because it is given on terms com-
patible with the independence of both giver and
receiver.
But it chiefly concerns my argument to point
out the certain economic gain which must follow
very successful experiment of the kind. The
GENERAL CONCLUSIONS. 301
immense saving of energy which is secured by
these means must inevitably increase the capacity
for production without in any way calling for a
larger consumption to satisfy primary wants on
the previously existing scale : though as a con-
sequence, consumption with manifest advantage
may be largely increased. It may be difficult to trace
the results in detail : they may not be shown directly
by any test in money, and it is not even desired
that the gain -should fall in any special degree
to those who have led the way to so beneficial a
change. But not the less certainly are new and
better conditions secured for life itself, and every
problem of industry will be worked out under
more favourable conditions.
Not inferior in importance to this is the great
question of National Education, which may also
make some direct call upon the capital of the
country. Eegarded even from a purely economic
stand-point, it is of the last importance that our
Public Elementary Schools should be vigorously
carried on and conducted on sound principles.
The primary object during the scant time which
is afforded for the formal instruction of the
children of the great mass of the population is to
train the young mind in habits of cheerful moral
discipline and rational self-control : to draw out
the faculties, to cultivate the powers of intelligent
observation and accurate comparison ; to teach not
so much mere " useful facts " as the true art and
method of learning. However rudimentary the
CHAP. IV.
National
education.
302 MONEY AND VALUE.
CHAP. IV.
course of instruction may be, it should of all things
be thorough in its degree, and specially directed,
as far as may be, to imparting knowledge, and
especially principles, of widely general application.
If teachers can succeed in maintaining their due .
authority without an assumption of their own
infallibility, they may the better succeed in im-
parting by their example one of the most useful
lessons that can be taught in the cause of " order
and progress." Duly to connect these schools with
those of a higher range of study is for many reasons
most desirable, but the former must be in many
cases the only, and should be the fitting, prepara-
tion, not merely for the field and the workshop on
the one hand, or the university on the other, but
for all that work and that education which for better
or worse must be carried on through life. Technical
training in all its many branches should be as-
sociated with, but must not be suffered to supersede
this necessary preparation, which is of such para-
mount importance. For while the exigencies of
civilised life require the early specialisation of indi-
vidual labourers, the interests of every one are in-
timately associated with and dependent upon those
of many others. It becomes daily of more and more
importance that every member of society should
acquire some capacity of understanding the true
relation which other, and perhaps apparently con-
flicting, interests bear to those in which he is
personally concerned. It is not the advance of
education that tends to bring different interests
GENERAL CONCLUSIONS. 303
into collision ; that is rather the inevitable conse-
quence of the growth of population and the con-
stantly increasing numbers who have to work
their way into our industrial organisation. It is
the densest ignorance that most blindly follows
those who promise all kinds of impracticable and
self-contradictory advantages. The old fallacies
will crop up over and over again, till a better
power of discernment dissipates these delusions.
Nothing is more rare than any original thought
on these or any other matters : all but a very
small minority necessarily adopt, more or less con-
sciously, some leadership. As the average power
of discrimination can be increased in any appreci-
able degree, even if exercised only in the choice
of leaders, so will the issues raised as between
" capital and labour " and on all such other social
questions, be brought more fully within the range
of sound reasoning.
Further : the special conditions of industry are
constantly changing. Just as in commerce large
profits arising from scarcity are so frequently fol-
lowed by the losses (and actual waste) arising from
an over-supply, so is it in other branches of
industry where interests of a more permanent
kind are involved. Even were the general culti-
vation of the faculties of far less consequence than
it is, a premature specialisation of the training
of the young should be avoided, as entailing in
a needless degree the risk of mal- adaptation to
the work ultimately required. This necessary
CHAP. IV.
304 MONEY AND VALUE.
CHAP. IV.
specialisation itself is indeed more adequately con-
ceived as the concentration of many active faculties
for one definite purpose, rather than as the merely
mechanical development of one faculty at the expense
of all others. A certain degree of intelligent mobility
may often be of more advantage than exclusively
technical training, however excellent. Take, for ex-
ample, the case of the Spitalfields silk weavers. A
highly artistic and delicate training led for years to
nothing but the extreme of poverty. A little more
general knowledge, conveying a greater power of
adapting their taste and dexterity to kindred pur-
poses, would have been of the greatest advantage,
both to themselves and art manufacture in general.
It is only by such continuous modifications and
adaptations that labour can secure an adequate
return of value, either " in exchange " or " in use " ;
and all such considerations involve economic results
of the most directly practical consequence.
In all cases, too, where the direction of action,
and especially of conjoint action, is required, the
call is for that rarely well-ordered exercise of all
the faculties which is often termed " common
sense." It is a good thing "to do one thing and
do it well/' but another side of the question,
equally important, is concerned not so much with
doing any one thing, as with adjusting many things
together ; and these two sides, representing as they
do interests common to all, should be so far under-
stood by all, that the irrational discontent arising
from mutual misunderstanding which tends to so
GENERAL CONCLUSIONS. 305
much waste of energy, should give place to the
acute but discriminating criticism which affords the
best stimulus for the general maintenance of a high
standard of efficiency.
Above all, the man is more than his work.
Though he needs must toil to live, he does not live
only for toil. And this truth also, in the harmony
of nature, has its economic side. However closely
the science of labour may be restricted to the con-
sideration of material production, the reflex effects
of leisure upon the powers of the worker exert an
influence, which cannot be disregarded, upon the
problems which it has to solve. The mere rest and
food of a brute will never suffice for the recreation
of a reasonable being, or supply that incentive for
exertion which will call forth the full exercise of his
energies. The brain- worker requires some physical
exercise : those engaged in manual labour equally
require some healthful exercise for the mind.
Nature does not permit one side of our being to
be wholly ignored with impunity. This is no far-
fetched theory. We have only to look around us
to find ample proof that the mere oblivion of sleep
and the monotony of some one form of toil will
never fill up the true measure of man's wants.
The instinctive craving for something more than
this will be deadened by dissipation, or find some
irregular vent, if it be not met by reasonable means
of satisfaction. The leisure which nature impera-
tively requires must either be a degradation, or a
recreation, even of man's " productive " energies.
CHAP. IV.
Leisure.
306 MONEY AND VALUE.
CHAP. IV.
Eegarding therefore merely the increase of
material wealth, without looking further to the
higher uses which it should subserve, the judicious
outlay of capital for all purposes of sound educa-
tion, for sanitary improvements of all kinds, for all
which may tend most effectually to promote the
well-being of the masses, may be regarded as most
truly " productive, " though the benefits which
result from it may be of so general a character that
they cannot be made the subject of that personal
relative advantage which constitutes the profit of
an investor in any definite work of utility. But
this increased power of labour, of skilled labour, of
organised labour, of labour capable of adaptation to
every exigency of society or of the State, is a far
higher and more permanent gain than can be
attained by any one effort of production. The
expenditure required might be a matter of diffi-
culty to a poor country, but it is assuredly the best
investment that can be made by one so rich as
our own.
But just the same rigid law which limits the
application of capital in any other undertakings
restricts it also in these. There is the same urgent
necessity for looking to the uses to which it can
actually be applied, and our advance must be made
step by step as the work to be done can effectually
be provided for. Some capital, but much more
than capital, is required to carry out such works of
far-reaching beneficence as are emphatically labours
of love. The inexorable laws of cause and effect
GENERAL CONCLUSIONS. 307
CHAP. IV,
know nothing of " good intentions." Means must
be adapted with equal care and forethought, what-
ever the ends desired ; waste for an ostensibly good
purpose is too often the most pernicious form of
prodigality.
But as far as money can aid in promoting the
ends desired it is idle to talk of a want of means,
or of " withdrawing capital from productive pur-
poses." The whole of our " optional " expenditure,
so ample and more than ample for all our wants, is
capable of any modification that our true interests
may require, either for peace or, if need be, for
war. We get just that for which our demand is
made effectual. True it is that " capital " must be
content to take the best that labour at the time
present is capable of giving; and just as the prepara-
tion of fitting appliances must precede the applica-
tion of skilled labour, so must the preparation of
suitable agencies be often the first step to social
reforms, and ultimate results may best be secured
by means which appear indirect and tedious.
Whether these agencies should be under indi-
vidual direction, or organized in connection with
local or imperial government, or under the control
of the State altogether, is a question the reply to
which should depend entirely on a reasonable esti-
mate formed of the comparative efficiency of the
modes of operation which can be brought to bear
by these several means respectively, or by any
combination of them. Experience will, I believe,
show that for most purposes, the more the functions
x 2
Adminis-
308
MONEY AND VALUE.
CHAP. IV.
of the government can be limited to those of a
supreme court of administrative supervision and
appeal, the fuller scope will be given to local and
individual energies, which are as yet so partially
developed for the public service throughout the
country, and these it is especially desirable to call
into activity where the success of the work to be
done largely depends on individual zeal, capacity,
and local knowledge, exercised under a due sense of
public responsibility. Be this as it may, the true
issue is still the same. By what means can the
work required be best accomplished ? It is absurd
to argue as though work ill done by lavish private
expenditure were a saving to the country merely
because the items do not pass through the public
accounts. As wealth becomes more diffused, public
spirit more active, and local government purer and
more efficient, the work paid for by rates naturally
tends to increase, but it by no means follows that
any greater weight is placed on the " productive
resources " of the country. Arbitrary or ill-adjusted
taxation, and still more " irregular " expenditure of
public money are indeed evils which sap the foun-
dations of all prosperity, but they are not to be
met by an inane wail that the country cannot afford
to find money. The plea is neither true nor to the
purpose. If public spirit be not wholly overlaid
by personal and selfish considerations, a little
practical manifestation of it suffices to clear away
most of the difficulties which beset such questions.
As far as the influence of public opinion is con-
GENERAL CONCLUSIONS.
309
cerned and who can doubt the weight of it ? the
wiser direction of demand can arise neither from the
operation of the law on the one hand, nor merely
conventional ethics on the other. The influence must
extend to the " positive morality/' which is tested
with such unsparing impartiality by the money
which gives effect to actual preferences. Not that
material production, as such, is to be disparaged, nor
anything that adds a charm or a beauty to life to
be sourly rebuked. No economic law invites us to
sympathy with the ascetic materialism which would
rule out the heavens like an account book, and
clothe the lilies of the field in drab by the lowest
contract. But still less should the miseries and
evils and incongruities which society presents, be
accepted as ordinances of a fate over which our
wills and actions can have no control.
Those who study the sadder problems of social
life with an adequate perception of the depth and
magnitude of the evils to be combated, know full
well that money alone is powerless to remedy them.
Alms are to charity much what capital is to enter-
prise ; useless and far worse than useless if not
applied with the vigilant exercise of that discretion
which is required to adapt such means to ends truly
beneficial. We cannot stop short at the relief of
casual distress while the causes of it remain un-
attacked. It is not that economists feel less for the
sufferings of the destitute, but because they per-
ceive more clearly the inadequacy of the remedy,
that they so strongly deprecate that wanton outlay
CHAP. IV.
Pauperism
and popu-
lation.
310
MONEY AND VALUE.
CHAP. IV.
in indiscriminate almsgiving which is constantly
found to drag down the poor into the abysses of
pauperism, in great measure by the forced and one-
sided competition which it induces against those
who are striving to maintain their independence.
They realise more fully the fundamental truth that
man must live on the fruits of toil, either his own
or that of others, and that the only adequate cure
is to fit men, not for supposititious work, but for
that by means of which they can take a real share
in the work of the community. No doubt mono-
polists and privileged classes have set the tone of
morality which disparages labour and leads the un-
successful to seek for a share in unearned wealth
rather than to struggle for fair conditions under
which industry may thrive. The stricter correla-
tion of rights and duties is the only adequate
remedy for this perversion of aim by which an
opposition of interests which should be casual only,
and easy of timely adjustment, is rendered irrecon-
cilable. It is the moral state and conditions of
pauperism under any disguise that are the most
intolerable evil, and least of all can sympathy be
given to those who encourage it on the preposterous
plea of hiding the " disgrace " of poverty. Cruel
indeed are the mercies of those who confound the
two. Success and failure are alike generalised
under our complex industrial system, and present
the extremes of results arising from many different
causes. There are many misfits in the world, and
many whom a well-organised charity can help to
GENERAL CONCLUSIONS. 311
make good their footing in the circle of industry.
The simple and easy conditions of primitive life
which indeed are rather a dream than a practical
reality cannot be afforded, but no means should
be spared by which all can be qualified to earn
and to receive a due share of that which appropri-
ately belongs to the civilisation of which they are
members.
The increase of population that will probably
fully quadruple our numbers within the present
century, is a fact that can neither be ignored nor
disregarded. But an exaggerated notion very com-
monly prevails as to the nature of the difficulty
which may thus arise. The increase, and that on the
augmenting increase, is cumulative, and shows in
startling figures when taken over a range of years.
The annual excess, however, of births over deaths,
is now only about l per cent., and in the early
part of the century was only 1 J per cent. No very
violent change can possibly be required ; the
exercise of a very little more prudence, forethought,
and self-control by a better educated community
would be an adequate remedy for the worst evils
which have ever been apprehended.
How far a growing sense of responsibility may
impose a rational and timely check upon this
increase remains to be seen. But I cannot agree
with those who regard this as the weight which
presses most immediately upon the energies of the
country. The more so as children born and reared
under conditions the most unfavourable for mental
CHAP. IV.
312
MONEY AND VALUE.
CHAP. IV.
and physical health are unquestionably ill-fitted to
take their place in the march of life in any quarter,
and it seems equally true that numbers do increase
in even more than average proportion under these
conditions. Herein is the true gravamen of the
complaint. In the rapid march of our wealth and
civilisation too many stragglers have been suffered
to fall behind. It is the helplessness of a large
portion of our population, rather than the aggregate
numbers of it, that presents the most serious diffi-
culties against which we have to contend. Still,
imperfect and misdirected as many of our recent
efforts have been, some progress has been effected.
We are getting to know by the teaching of experi-
ence more and more of the nature of the work to
be done, and never can we know rest till the full
measure of our duties is accomplished. The British
Empire is not confined to the limits of the United
Kingdom. Though these islands are closely peopled,
our magnificent dependencies are hardly occupied
at all. The whole dominion of Canada does not
comprise together much more than the population
of London alone, and the five Australian colonies
about half that number. The Cape of Good Hope
and Natal contain not more than about a single
million. New Zealand as yet contains fewer in-
habitants than Liverpool. There is still much
even of our own portion of the earth to replenish
and subdue. But though we might well spare
money, we cannot yet afford to send to our Colonies
the men whom they would willingly receive. To
GENERAL CONCLUSIONS. 313
send out, as a class, those who are now outside the
pale of productive industry at home, would be a
crime as monstrous as it is, happily, impossible.
But there is yet time to train those whom we now
regard as a " surplus population," so as to fit them
for this alternative, which should be open to all who
would carry the traditions of our name and race
throughout the limits of our empire. If this
country is to be indeed a mother of nations, she
must recognise and adopt the high task of fitting
her children to embrace, and to be worthy of, their
destiny. In them is vested the value which is
worthy to be the ultimate object of our aspirations.
CHAP. IV.
O
CALIFORNIA.
APPENDICES.
APPENDIX I.
SOME FURTHER REMARKS ON LOCAL AND GENERAL
CURRENCY.
THE foregoing treatise has been confined as far as possible
to the consideration of principles of general application,
but it may be of interest to explain somewhat more in
detail what means are adopted in this country to preserve
the amount of coin and bullion required ; 1st. Duly to
guard the integrity of our internal currency, which con-
sists not only of gold, but also of notes, representing
multiples, and silver and other tokens representing aliquot
parts, of the standard coin ; and, 2nd, To provide for all
such exigences as may arise in connection with our foreign
commerce. No line of demarcation can or ought to be
drawn between the funds available for these several pur-
poses, for the object is to provide that the common measure
of value which serves for our domestic trade shall be
identical with that which will inevitably serve for that of
all foreign trade throughout the world, and that its value
should be thus based on the world- wide average which
affords the greatest attainable stability. This naturally
leads also to some further consideration of the conditions
affecting the interchange of the precious metals between
different countries.
I do not propose to enter at any length upon the vexed
question of the Bank Charter Act of 1844, but without
here expressing any opinion as to whether or in what way
its provisions might be amended, I shall proceed to offer
some further explanations as to the constitution and posi-
tion of the Bank of England, and as to the work with
318 MONEY AND VALUE.
which it is so closely associated as the centre of our
financial system.
1. The Currency of the United Kingdom. Since the
resumption of specie payments by the Bank of England
in 1816, the coinage of gold by the Mint has amounted
to nearly three hundred million pounds sterling, but it is
estimated on very competent authority that only about
40 per cent, of this value remains in the kingdom. The
actual waste of coins is indeed very small, for, notwith-
standing some not very fair usage to which they are sub-
jected, it is found that, on the average, it takes eighteen
years' wear to reduce the. weight from 12 3 '2 74 grains troy,
at which the sovereign is issued, to 122'5 grains troy,
below which it is rejected at the Bank as light. But the
British coin is known everywhere, and there has certainly
been a steady outflow in innumerable small dribblets to all
parts of the world : moreover, as sovereigns are not guarded
by any seignorage or charge for mintage, they are fre-
quently melted and perhaps recoined in other countries.
It will appear hereafter that it is very desirable that they
should in this way flow out as freely as they flow into
circulation.
We have, however, chiefly to deal with the more
active and visible portion of the currency, and though it
is satisfactory to know that there is a large fund held in
reserve in the country, no practical question turns upon
any exact estimate of its amount. For the most part it
lies below those fluctuations which afford any indication
of the changes in foreign or domestic commerce. First
as to our home circulation : It is well known that the
issue of legal tender notes is now confined to a separate
issue department of the Bank of England. As far as the
Banking Department of the Bank of England is concerned,
the notes it holds constitute no claim whatever upon its
resources. Their value is independently based, and they
are an asset in its possession just the same as they would
be if held by any other corporation. They are based to
the extent of 15,000,000 (increased by certain provisions
under the Act of 1844 from the 14,000,000 then author-
LOCAL AND GENERAL CURRENCY. 319
ised) against " securities," including 11,015,100 of debt
due to the Bank by the public for money advanced at
different periods. It has been shown (III. 5) that
securities of this kind are not to be relied upon in a time
of monetary pressure, but this point is never likely, in
this case, to be brought to the test of experience, for in
truth the value of notes to this extent is far more effect-
ually guarded by the inevitable operation of the law of
demand and supply (II. 6). Far more than this amount
is required for carrying on our domestic trade. In fact a
further large supply of notes is necessary to prevent their
undue appreciation, and all above this 15,000,000 are
issued only against the deposit of gold coin or bullion in the
Issue Department. According to the quarterly averages
published, the bullion there held ranged during A.D. 1861
to 1866 from 12,000,000 to 15,000,000, the notes issued
to the public ranging from 20,000,000 to 22,000,000, the
difference between this issue and the amount of gold, plus
the 15,000,000 of securities, constituting, as it always
must do, a reserve in the Banking Department. From
A.D. 1866 to 1871 the amount of bullion ranged from
14,000,000 to 23,000,000, the public circulation being
from 23,000,000 to 25,000,000. From A.D 1871 to 1876
the bullion ranged from 21,000,000 to 35,000,000, the
circulation showing a gradual increase from 25,000,000
to 28,000,000 ; the reserve of notes in the Banking
Department being at one time over 20,000,000. The
last return of the year 1876 shows a total issue of
43,000,000 against the fixed 15,000,000, and 28,000,000
of bullion ; of which total 28,000,000 were in the hands
of the public and 15,000,000 1 in the Banking Depart-
ment. This excess of notes representing the available
reserve of gold will be shortly referred to. The increase
in circulation is probably owing in great part not so much
to the mere growth of trade as to its diffusion among
those classes who chiefly use such money for their trans-
1 The coincidence of these totals is purely accidental. At the end o
1877 the total issue was about 39 millions, 27 millions being in circu-
lation and 12 millions held in reserve.
320 MONEY AND VALUE.
actions. The returns of the savings banks somewhat
confirm this view, having increased from 45,000,000 in
1867 to over 70,000,000 in 1877. Not that the sums
paid into such banks directly imply the holding of specific
money, rather the reverse ; but the fact does afford satis-
factory evidence of a more general diffusion of wealth,
which would put it in the power of some millions of
people to keep a few more notes in their pockets for
current uses,
Be this as it may, it is evident that the more or less of
our internal circulation directly rests upon a gold basis.
The note also is a legal tender everywhere in England,
which ensures its retention in circulation as far as money
is required at all in any such form ; thus, though all
holders of Bank of England notes have not literally rights
as in rem to the specific amounts of gold expressed upon
them, nothing short of disasters which absolutely destroyed
our industrial system altogether could endanger the con-
vertibility of any note at the will of those holders who
could possibly have any occasion to demand payment in
standard coin. The holder of a legal tender note has
moreover, as such, a right in rem to a document vested
with a purchasing power of altogether a specific and
exceptional character.
In addition to the notes of the Bank of England, there
are those of private and joint-stock banks which fill a
place in the currency, the amount of issue legalised being
on an average taken to indicate their existing circulation
at the time when the currency was made subject to legal
restriction.
In England out of 8J millions thus authorised in A.D.
o 1844, the right to issue over two millions has been suffered
4 7 to /lapse, and the actual circulation is now only about <4^-
millions. This diminution may account for the increase
in the issue of the Bank of England to the extent of one
to one and a half million pounds.
In Ireland and Scotland, however, the circulation shows
a considerable increase, though in accordance with the pro-
visions of 8 & 9 Viet. c. 37 & 38, A.D. 1845, coin must be
LOCAL AND GENERAL CURRENCY. 321
held (though it is not specially held) for all issue above
the amounts then authorised. Both Irish and Scotch
banks issue 1 notes, which the people are used to, and
prefer to sovereigns. In short, the effective demand is for
that form of money with which they are most familiar.
The Irish authorised issue remains at the sum of
6,354,494, as determined in 1845. The actual issue
is nearly 8 millions ; coin being held for 3J millions ;
or two millions more than the Act requires.
Of the Scotch issue authorised, 337,938 have lapsed
(owing to the failure of the Western Bank of Scotland in
1857), leaving 2,749,271. Their actual issue has, how-
ever, steadily increased, and is now over 6^- millions,
coin being held to the extent of over 4| millions.
So, especially as regards the latter, it will be seen that
setting well-established issue on the one side and the
aggregate of coin held on the other, the Irish Banks
taken together, and the Scotch Banks also taken together,
are in at the least as strong a position as regards the
proportion of bullion held as the Bank of England,
though as the law now stands the coin is, in the case of
each several bank, only a general asset for the whole sum
of its liabilities : 44 per cent, of the Irish Issue, and 73
per cent, of the Scotch Issue represent Coin, held in the
banks of the two countries respectively.
The note circulation of the United Kingdom therefore
at the end of last year (1876) may be taken as : for the
Bank of England 43 millions, of which 28 millions
only were in the hands of the public, other English
Banks 4J, Irish 8, and Scotch 6 J, together 19 millions
more, or in all 47 millions of active circulation. This
showed an increase (somewhat lessened in 1877, but), for
the most part steadily progressive, of about 25 per cent, in
this note circulation since 1861. The issue of the Bank
of England being then about 21 millions, other Banks
about 17 millions, in all 38 millions nearly.
2. Fluctuations in the Amount of Circulation may be due
to causes of a merely temporary, as well as of a more
permanent nature. There are certain well-known periods,
Y
322 MONEY AND VALUE.
such as harvest time, when extra wages are largely paid ;
and in Scotland especially, term times when rent, half-
yearly and other hirings, and many such matters are
arranged according to local custom. The notes and coin
sent out on such occasions return with perfect certainty
and regularity. The social conditions which may give rise
to more permanent changes in the amount of notes and
coin held in circulation are very various. Thus a thrift-
less population, always in debt for the necessaries of life,
would have to pay the money received as wages im-
mediately to the shop-keeper or publican. A more
provident community would keep much more money in
hand and hold it in reserve. Again, a population as
thrifty but acting on a more intelligent plan, might so
divide its earnings between the shop and the Bank as to
reduce the use of current money to a lower rate than
ever. A curious side-light is thrown upon the use of
money by reference to the well-known "truck system."
Nothing could appear fairer than the idea of a great
employer buying goods wholesale and retailing them at
saving prices to satisfy the wants of his workmen. The
result, however, was such flagrant abuses and so much
discontent, that the legislature had to step in to require
that wages should be paid fully and solely in the current
money of the realm. The effectual way in which it
secures to the owner the power of free choice (II. 5)
affords an adequate remedy for the wrongs suffered. But
this requirement of the law no doubt tended to increase
the circulation ; the establishment of co-operative stores
would tend again to diminish it. Such illustrations serve
very fairly to indicate the way in which specific money
may be most largely required in certain intermediate stages
of society, and are applicable both to questions of internal
currency and of international trade with nations whose
industrial system is imperfectly developed.
I have advisedly abstained from laying much stress
upon exact estimates of the quantity of currency either
of gold or silver held for domestic circulation, not only
because they cannot be determined or verified with any
LOCAL AND GENERAL CURRENCY. 323
degree of accuracy, but also because the demand for such
money must also be constantly shifting from the most
opposite causes, the working of which it is very difficult to
discern. The fluctuations in the ultimate reserve of the
currency shown by the returns of the Bank of England
are facts definitely, certainly, and promptly known, and,
at present at all events, afford the most trustworthy
indications of the actual changes in the ultimate balance
of supply and demand with which we are practically con-
cerned ; but these indications must be intelligently, and
not blindly, interpreted.
o. The Cost of a Metallic Currency has often been the
subject of estimates, but there is a want of reality in the con-
clusions, which are indeed in excess of the premises that in
ordinary questions may be safely assumed. There is no doul/t
an inevitable waste from abrasion, and it would be well if
some means could be devised by which the pre-eminently
public charge of making good this loss should be borne by
the State, and not arbitrarily thrown upon individuals. But
the great item of alleged expense is that of interest. If,
however, in order to carry out any of the economies pro-
posed we were to attempt to sell the bullion " saved " we
should find it difficult if not impossible to carry out the
operation. If by an issue of fifty million one-pound
notes in England we were able to withdraw the same
amount of sovereigns, we could not sell the gold to foreign
markets without causing a perturbation in exchange value
by which we should probably lose far more than we could
gain in account by interest. The precious metals are
fitted for certain uses as money, and this gives rise to the
effective demand which is one of the chief factors in
determining their relative value. If these uses are
generally lessened or superseded this value must be so
far lost. Gold or silver should not for any such reason
be used in preference to other forms of money which are
better or more convenient, but the notion that on the score
of economy it would be well to dispense with the use of
them somewhat overleaps the conditions of the laws of
relative value. The practical question is not whether the
Y 2
324 MONEY AND VALUE.
ordinary work of domestic interchange could be carried on
with less metallic money, but rather, how far it is desirable
for the country to hold a greater or less reserve of value
in this special form, which in case of emergency could be
passed into international circulation. If the exchange value
of gold or of silver were less, they might indeed be
more applied to useful purposes in the industrial arts, but
it is not on this score that the suggested economy is
advocated.
4. Silver and Bronze token Currency. The old tra-
ditionary silver standard is now completely superseded.
Since A.D. 1816 it has been coined at the nominal rate
of 5s. 6d. per oz., standard, or 87J grns. for the shilling ;
that is, if any one had melted it down and sold the metal he
would not have got more than elevenpence for it. At the
present market price of silver (about 4s. 6d. per oz.) he
would hardly get tenpence ; and during the late scare in
the silver market, the bullion contained in the coin could
hardly have been sold for ninepence. Silver coins are
purely a token currency representing aliquot parts of the
sovereign. They are " legal tender " only to the amount
of forty shillings. Thus if a shilling a week were paid
into a Savings' Bank, it would not be a legal tender to
offer to pay back the fifty-two shillings at the end of the
year part at all events of the debt could be demanded,
as of right, in gold coin. The right to coin such tokens
must necessarily be restricted to the State; for if the
Mint were compelled to give silver coin for bullion to
individuals, it is evident that there would be no limit to
the demand to get coin worth -^ of a sovereign, in ex-
change for bullion worth in the open market only say
-2^5- of the standard coin. The government provide only
as much as is required for actual use, and the value of
current silver as representing aliquot parts of a pound
cannot be the subject of any rational doubt. It is absurd,
however, to refer to the value of the silver coinage as
maintained by its scarcity, and to adduce the currency
of the shilling as a proof that a seignorage (that is, the
charge by the State of the difference between the cost of
LOCAL AND GENERAL CURRENCY. 325
the bullion actually in the coin, and the legal value
assigned to it) is sufficient to create an independent value.
The effect of a seignorage is not in this case put to the
test at all. The safeguard is the practical convertibility
of the token into the standard coin which it represents.
The slightest difficulty in getting two sovereigns for forty
shillings, or even a half-sovereign for ten shillings, would
at once impair the currency of the silver. It would not
willingly be received into circulation. If silver be coined
in excess the only result is that it accumulates as a dead
weight in bankers' hands. The burden falls upon them in
the ordinary course of business, inasmuch as they usually
receive broken sums, from their smaller customers
especially, who, if they do not want silver, draw out only
round sums in gold. Bankers put up with a comparatively
small inconvenience sooner than disturb the even course
of the monetary circulation, but the loss would be in-
tolerable if the extent of it could be increased by un-
restricted issues, nor can it be supposed that any banker,
for a gain which in the first instance must be extremely
slight, would attempt to force money into circulation against
the wishes of his customers in sums not exceeding forty
shillings. An over-issue of tokens under these conditions
cannot affect the value of those which can be got into
circulation. The redundance is so palpable that the
excessive supply is checked at once.
The silver coins being mere tokens of the aliquot parts
of the gold pound, it follows, as has been already noticed,
that any calculation based upon the intrinsic value of the
metal in them is altogether illusive. But there is a very
adequate reason why our subsidiary currency should be
made of that precious metal which approaches in value to
the equivalent in gold represented by it. If bronze tokens
of no appreciable cost were used, they would indeed nor-
mally serve the purpose just as well as silver; but
practically we have to take into consideration the risk
which might arise from fraudulent counterfeits. As long
as the intrinsic values of the metals show a small differ-
ence only on which illicit gain could be made, we are
326 MONEY AND VALUE.
comparatively safe. A shilling made of pewter or any
such base metal, however well executed, can certainly be
detected. Bat how would it be if there were an adequate
inducement to make any actual facsimile in all respects of
the lawful coin ? The detection of such a fraud would
be extremely difficult ; but the difference of a penny or
even twopence in the shilling is no adequate gain to set
against the risk, as long as only small amounts can be
passed into circulation without exciting attention. In
this very important respect the security of our subsidiary
currency does depend upon the intrinsic value of the metal
used. Bronze and Copper coins are equally tokens repre-
senting the smaller aliquot parts of the pound. A
manufacturer could no doubt make them on a large scale
so as to yield a very high profit on their value as tokens,
but could not pass them out to any great amount without
the certainty of speedy detection.
The silver and bronze coinages are of course exclusively
for home use. So are the notes of banks other than those
of the Bank of England ; and a portion of these notes
also, and of sovereigns, will be constantly required for our
domestic commerce. But a further portion of notes, repre-
senting coin and bullion held as equivalent to them in the
Bank of England, is constantly applicable to the require-
ments which may arise for foreign trade.
5. The Bank's Reserve of Gold fittingly held in common
loth for Home and Foreign Trade. The reserve in the
issue department of the Bank of England is therefore the
fund pre-eminently common both to our foreign and our
domestic trade ; and it is needless again to refer to the
way in which these are indissolubly associated together, or
to the incalculable advantages which every member of an
industrial society derives, often unconsciously but not the
less surely, from the vast band of fellow-workers with
whom he is thus associated. I have already shown how
the transmission of bullion from one country to another
is only required when all the ordinary resources of trade
immediate and prospective, offer no better means for the
exchange of international value ; and further, how very
LOCAL AND GENERAL CURRENCY, 327
finely, and with how little strain, operations for this pur-
pose are ordinarily carried out. But the point deserves
some further notice : for it is sometimes speciously urged
that home industry ought not under any circumstances to
be exposed to perturbations arising from foreign trades.
A very direct issue is suggested in this context which may
come home to some of those who care little for more
general considerations. If gold, which, as has just been
said, is only transmitted as a last resort, were not to be
had, or equally if it were to be had only at a high premium
on the legal (domestic) currency, those who were under
the imperative necessity of meeting their obligations
abroad would be compelled to make forced purchases in
the general market contrary to the natural course of
trade of anything that at the least cost and sacrifice
would convey value to the place where their debts were
due. They would have to face a loss, and all who were
engaged in the branches of trade thus interfered with
would suffer also, the aggregate loss being in a far greater
ratio than the excess of supply thus abnormally forced
upon the market. It is impossible to say whose or what
interests might be injuriously affected by such operations,
and equally impossible to prevent any one from buying or
selling at forced rates under such emergencies. That
reckless and ill-judged trading affects the interests of
others besides those who are directly responsible for it is
most true, and the hardship cannot be denied ; but even
the immediate evil is mitigated by throwing the pressure
thus arising rather on the great market for bullion than on
individual interests, which might be ruined in detail, one
disaster leading to others, in far greater proportion than if
the burden were, as it now is, more generally diffused.
The reserve of bullion is C9mmon to all, and contributes
greatly to the safety of all alike. Moreover, it is the
business of every one to look to the general indications
which the state of the " money market " affords, and which
are open to all alike far more readily than the circumstances
of special trades, which may adventitiously come into
rivalry with their own.
328 MONEY AND VALUE.
6. An Excess of Gold an Uncertain Banking Asset.
Looking back to the incidents of former commercial
crises with the light of more recent knowledge, dearly
bought by experience, it is clear that the derangement in
the monetary system which preceded them, and of which
they were in some degree the result, arose from a want of
discernment of the true principles by the aid of which the
indications afforded by the bank's returns should have
been interpreted. A surplus of bullion was taken as a
sign of a superabundance of capital seeking productive
investment, whereas it was merely an excess of circulating
medium in want of immediate employment. If the con-
ditions under which bankers hold the deposits with which
they deal are kept in mind, it will be seen that an unusual
amount of gold thus is, and must be, a very uncertain
banking asset. The average value of deposits left with
them for use in the money (loan) market depends upon
conditions which are comparatively stable. The banker
occupies a central position as regards these conditions, and
it is, moreover, his well-recognized business to look out
for and interpret any changes which may affect this
stability. The value of gold no doubt depends upon a far
wider average, and possesses therefore a still higher degree
of stability. But we must carefully bear in mind in this
case the process by which the equilibrium of value is
secured. Neither this country nor any other can be
regarded as a centre. Bullion flows to all parts on the
least possible gradients, and that it should do so is essential
for its full utility as a common measure of value. An
unusual supply in this or any other place is therefore
primd facie evidence that this equilibrium is somewhat
disturbed, and the return to a normal level is an event
which, though it may be more or less delayed, must ever
be expected.
Superficial appearances were no doubt deceptive. A
superabundance of money in one sense was apparent, and
even though the amount of loans were increased, it did, as
it ever must, come back again and again. For there is
nothing in the fact that a few millions of bullion have
LOCAL AND GENERAL CURRENCY. 329
been imported in the fluctuating course of trade, to increase
the amount of it required for, and held in, local circulation.
In a community where banking was little known such a
surplus would necessarily be diffused among its wealthier
members and have a very direct effect upon prices (I. 22).
But in so well organised a system as our own, a superfluity
of currency is simply rejected from circulation, is returned
in the ordinary course of traffic to bankers, and by them
is paid into the Bank of England. Extended as commerce
now is over the whole civilised globe, an increase in the
quantity of the precious metals is rapidly diffused to
every part of it before there is time for the casual excess
to have any very marked effect. For though the relative
cost of production in any one country as compared with
another is not governed by the value of metallic money
(TI. 19) the relative value of such money as compared
with all commodities generally, can be changed perma-
nently only according to the conditions common to all,
not according to the local and temporary excess or deficiency
in any one country.
It would, moreover, be quite contrary to fact to assume
that because England is a very wealthy country it will
therefore absorb an unlimited amount of bullion. It can,
and does on occasion, afford to hold a very large surplus
for which no appropriate employment can immediately be
found ; but that is a very different matter. Thus, as has just
been noticed, the Bank of England held in the beginning of
1876 21 millions of bullion ; in September this had in-
creased to .35 millions. In May, 1877, it had fallen to 24
millions, at which point the banking department of the
Bank of England raised its rate of discount from 2 to 3
per cent, per annum. The practice of the bank during
the year may be cited as entirely in accordance with
sound theory. This accumulation of gold was simply held
as it were for safe custody until it was required for those
purposes of international trade which alone could relieve
us from it. The reserve in notes and coin being 8 millions
in January, 1876, 22 millions in^September, and 10
millions in May, 1877 : these varying reserves being over
330 MONEY AND VALUE.
and above the comparatively stable amounts required for
internal circulation. Further, the amount of private
deposits, including those made by other banks, shows a
close correspondence with these fluctuations, increasing
with the increase of bullion and decreasing as it was
withdrawn. But no attempt was made by the Bank of
England to force any part of this exceptional supply into
circulation. Had it done so the results under these head-
ings could hardly have shown any material difference, but
the futile attempt would have been disclosed by that item
of their accounts which shows the amount of " securities "
held by it, that which in fact comprises the loans made to
the public. If these had been increased to correspond
with the increase in deposits, the diminution of that part
of the bank's assets, consequent on the withdrawal of
surplus gold, would have been a valid cause for appre-
hension. For having unduly stimulated enterprise or
speculation by lending capital, because it had an excess of
gold, this supposititious asset would escape from its control.
It would have to come into the money (loan) market for
the capital it had lent, for it is not the amount of a bank's
deposits, but that proportion only which the depositors on
the average leave with it that can safely be employed ; and
gold is specially liable to be drawn out under the circum-
stances supposed. This was essentially the error of former
times, not that the bank had to undergo the overt humilia-
tion of becoming directly a borrower, but what in the
relative position of banking agencies comes to very much
the same thing, it was unable to afford its usual quota of
support to credit. In short, it found itself weak just when
it should have been strong, from trusting to a deposit on
which it had no sound reason to rely.
7. The Rate of Interest as affecting the Transit of Bul-
lion. As the custodian of the available reserve of bullion,
the Bank has to take timely precautions to maintain this
reserve at the level which prudence requires ; and this it
can most effectually do by its action upon the rate of
interest. It cannot indeed govern the price of loans
negociated through all other channels, i.e., through the
LOCAL AND GENERAL CURRENCY. 331
Joint-Stock and private banks throughout the 'kingdom,
but it can and does appreciably influence it. The cer-
tainty of the effect of a timely resort to this expedient
has somewhat magniloquently been called the great bank-
ing discovery of modern times. The mode of its operation
is not the less beneficial and well adapted to the end de-
sired. London being the great lending market, interest
entering into every transaction involving the use of money,
and banking profits also being on so fine a scale as, for the
most part, to lie within the charges made as interest, it
follows that a change in the cost of money here will tell
everywhere, and of course most promptly, on neighbour-
ing countries. Foreign bankers who have found use, or
may expect to find use, for English "money" at a low
rate, draw it from us, selling their bills on London. If
these are in excess of the demand which any foreign
market will afford, the rate of exchange is turned, as has
been already described (IV. 16), and a portion of the
amount goes out in bullion. A rise in the charge for
interest here checks any such demand for English floating
capital, or may even turn the current the other way.
Bullion is, however, the more likely to be sent one way
or the other, because these operations are in their nature
somewhat in excess of the ordinary demand and supply of
the markets affected, that is, every market which deals
directly or indirectly with England. A comparatively
small amount of bills of exchange bought or sold thus
turns the scale in very many places. A favourable rate
brings forward buyers or sellers as the case may be, as far
as they are in a position to avail themselves of it, but a
rise in the rate of interest in London, being a cause of
very general operation and everywhere felt, the limits in
the rate of exchange beyond which bullion becomes the
best means of remittance are sure to be reached first in
one place and then in another, sooner or later, according
to the strength of the inducement held out for prompt
action.
It is in this way and to this extent that the stock of
gold is directly affected by the rate of interest in the loan
332 MONEY AND VALUE.
market, and, indirectly may be influenced by the current
prices of more permanent investments.
The same reasoning applies of course to every banking
centre, but England, as pre-eminently a banker, has the
command of the reserves thus generally held, in a special
degree, and as long as confidence in her monetary stability
remains unimpaired, can always control the supply of
bullion without putting an undue strain on any quarter.
If the functions of bullion are clearly seen, the reason
for reliance on this expedient will be apparent, and also,
which is of quite as much importance, the limits within
which it will be justified. Action too tardily taken, or
taken under the influence of panic, is likely to be
thwarted, for, though England cannot rightly be described
as a borrowing nation, she is yet one largely trusted with
the funds of other countries, and a shadow of weakness or
suspicion tends to induce a withdrawal of such funds,
which might reverse, or at least retard, the due course of
international exchange, for nothing can be more free and
spontaneous than its action.
8. The Charge of a Seignorage on Coinage. Slight as
are the fluctuations which serve to turn the flow of bullion,
especially as between the chief monetary centres of
Europe, the position of this country is such that usually no
further action is required than suffices merely to arrest
a portion of the supply coming from bullion-producing
countries. Eoughly speaking our average receipts for the
last few years have been about 30 millions, about two-
thirds of which are gold and one- third silver. The former
only is specially dealt with by the Bank of England, but
even the whole of this portion does not go to it. For
though the Mint is under obligation to return sovereigns,
weight for weight of standard bullion delivered, the opera-
tion of coining cannot be performed at once. The practical
alternative is to sell bullion to the Banking Department at
77s. 9d. instead of 77s. lOJd. per oz. (III. 1), the former
thus being the selling and the latter the " buying " price
for the public. This difference of \\d. per oz. is less than
\ per cent., and may most fairly be considered as a dis-
LOCAL AND GENERAL CURRENCY. 333
count for prompt payment, being equal to 20 days' interest
at 3 per cent, per annum. Any immediate demand for gold
to be sent abroad may therefore be supplied directly from
arrivals coming in from Australia, America, or elsewhere.
If, however, there is the least check to this immediate
demand, the gold is sold to the Bank, which must take it at
77s. $d. per oz. The result of this is that the Banking
Department has to send the bullion to the Issue Depart-
ment, receiving for it notes, which, as has just been shown,
often cannot be turned to any present use ; while the seller
gets the money of account which he of course can spend
or employ at his own discretion.
Although the issue department has in this way some
latitude as to the amount of bullion it may actually turn
into coin, it is under the imperative obligation to pay
sovereigns for every note presented. Coin as coin is some-
times required for exceptional reasons, and in many cases
sovereigns as being generally recognised even abroad,
possess a more effectual purchasing power than bullion
could afford (II. 4). Such temporary use being completed
the coin naturally flows back, not being permanently
required abroad as currency. If it were guarded by a
seignorage, say of one per cent., 100 parts coin would be
at first equal to 101 parts bullion. So far there is an
apparent gain. But whenever the former became redun-
dant it would lose the special value which depends on use
being found for the whole quantity, and the intrinsic
value (II. 31) of the coin being one per cent, less than that
of bullion, the whole currency would be liable to deprecia-
tion before the surplus could be utilised. It might seem
easy enough to levy such a charge upon the supposition
that those who applied for coin could readily recoup
themselves for the facility afforded by a single operation,
but no such charge would be paid as long as coin of the
same weight could be drawn from the currency. Practically
all coin must be Tnintp.fl on the same terms and it would
be impossible so to regulate the issue as to avoid the
occasional accumulation of an over supply. With the
present large production of gold a large traffic in it is
334 MONEY AND VALUE.
inevitable and this very inucli changes the conditions upon
which, five and twenty years ago, economists argued in
favour of such a charge. The highly perfected machinery
of modern mints makes coinage a very cheap application
of labour to render such a commodity as gold applicable,
in the highest degree, to the uses to which it can be applied,
and the only way now of maintaining intact the value of
the sovereign is by issuing it free of cost, i.e. as the exact
equivalent of the bullion contained in it. The uses of
money are so general that it is for our own interest to
facilitate these uses in every way. We trade so largely
in " values " that it is sound policy for us to make no
charge for any use of the common measure of value. In
thus giving the standard gold coinage freely to all, the
highest attainable stability is secured for it. The State
does all that can be done to avert the evils of temporary or
casual fluctuations, and in undertaking this work at the
public cost does not lay itself open to the charge of
incurring a needless or useless expense, but exercises
a judicious liberality befitting the position which this
country holds in the commercial world. The argument
evidently does not fully apply to all countries, or indeed
to British India, and the charge of a seignorage on the
rupee there, as far as it is required to cover the cost of
coinage, is fully justified.
9. The Cost of Maintaining Reserves of Bullion. It is
hard to say in the case of an excessive stock of bullion who
it is that bears the loss or expense of holding it. The
Bank of Issue has it in its vaults, but that department is
charged with very special functions and has nothing to do
with the uses of money under any circumstances. The
banking department has notes which it may not prudently
be able to use ; but only under such circumstances would
the notes have been issued to it at all. It certainly loses
nothing by keeping so much more paper in hand. When
other notes come in from circulation for payment in gold,
these supply their place ; the aggregate circulation, and
the amount of deposits which can safely be utilized, not
being affected by the change. Those who pay in gold have
LOCAL AND GENERAL CURRENCY. 335
the immediate use of money in account without any care
as to the use to which the bullion as such can he applied.
The loss, if it can so be called, is diffused over trade
generally and is of that very supportable kind that a
wealthy man endures who has to keep money lying idle
till he finds something he thinks worth buying with it.
The banking department of the Bank of England being
liable to have deposits forced upon it in the way described,
could not afford to pay interest upon them, and indeed does
not pay interest on any deposits whatever. And rightly so
as a matter of principle. Because as the bank of bankers
and holder of the ultimate banking reserve, it should be
under no sort of pressure to use money which should be
kept sacred for this special purpose. Just as much as
activity and enterprise should characterise those who are
pressing on to extend the commerce of the country into
every field which can be laid open by their energy, so
should prudential forethought be the cardinal virtue of
those who guard the reserves of the army of industry.
10. Silver as a Medium of International Exchange. The
principles involved in dealing with silver bullion are the
same as those which regulate the transmission of gold,
though it is bought and sold at fluctuating prices as
measured in the gold currency, entirely according to the
demand and supply in the open market, and in so far as
calculations cannot be so exactly made, the work done
cannot be carried on with quite so fine margins. Moreover
the great markets for silver are in Asia, and the stream
runs very steadily in that one direction. The nature of
the dealings, therefore, is somewhat modified. Bankers
have not so much to do with fluctuating balances of inter-
national indebtedness as with regulating a greater or less
supply according to the ability of the trade of Asia to afford
suitable means of payment for the balance of treasure sent
both in gold and silver. A certain process of adjustment
goes on between India, China, and other parts, but as
England, and indeed Europe generally, owes, under present
conditions, almost a constant balance to Asia, this adjust-
ment can only be partial. These conditions of course
336 MONEY AND VALUE.
cannot be regarded as permanent in any strong sense of
the word, though for the present it may be said generally
that England supplies manufactures to the bullion produc-
ing countries, and with the precious metals so obtained
pays the balance due for raw materials drawn from Asia.
The " friction " in the way of interest and transit charges
is of course much greater. There are differences also in
the details of the operations required. Thus the weight
of silver required to obtain the rupee current among the
millions of India is exactly known, but the price shifts
constantly here. The price of gold also as measured in
rupees in India is equally variable. In China again, though
the weight of the " tad" is well known, much of the bullion
sent is in Mexican dollars, which bear an uncertain premium,
simply as a common measure of value more available,
because now better recognised in some of the districts
opened to European trade, than the " sycee " silver of local
bankers, into which however it is melted down whenever
this occasional premium is lost from slackness of demand
specially for the coin. The old Spanish imperial dollars
are in some parts used as tokens of a tael, though intrin-
sically worth less than 72 cents of a tael, and have actually
been at a premium on the weight of silver which they
represented ; only particular coinages being so accepted.
Anomalies of the kind are illustrations of the way in which
value may be arbitrarily and exceptionally represented
under special emergencies ; they are essentially casual and
temporary. But weights of metal are the standard to
which such tokens are ultimately referable, and not-
withstanding such eddies as these, the value of gold
and silver respectively, and also their relative values,
are worked out according to the world-wide average by
banking agency, the extension of which to every consider-
able centre of traffic throughout the world is as remark-
able as any of the industrial developments of recent times.
11. The Abuses of Credit. Throughout the foregoing
treatise I have endeavoured to exhibit clearly the essen-
tials of the work of production as well as the machinery
by which it is carried on. Where these essential require-
PANICS AND MANIAS. 337
meats are not fulfilled a strain surely falls upon the
adjustments by which credit is dispensed, though this
strain in the first instance is slight and inappreciable. It
is the cumulative effects of a misapplication of capital
which result in those crises which periodically occur in
the financial world, and no mere change of form can be
an adequate remedy for the evil Nothing is easier than
to simulate forms, and nothing tends more than compli-
cated forms to distract the attention from the realities
which they should express, but not disguise.
The great financiers who framed the Bank Act of 1844
were not altogether free from the traditional delusion
which ascribed to the currency a power of regulating and
controlling the whole course of commercial and industrial
enterprise. It is said that the Act has repeatedly failed.
If by this is meant that it has not secured objects of this
kind, the charge is no doubt perfectly true. The attempt
thus to supersede the necessity for individual forethought
and discretion is wholly illusory. But so far as it was
reasonably designed to secure the currency, properly so
called, from any of the vicissitudes of trade, the principles
upon which it was based have been fully justified. The
suspension, by the authority of Orders in Council, of the
restriction upon its issue have not been required so much
for the safety of the Bank itself, as to enable it to render
exceptional assistance to trade under circumstances not
only wholly abnormal, bat, in their very nature, transitory.
The relaxation of the letter of the law has been the remedy
for a " panic. " To expect any law to provide against such
a condition as this seems as unreasonable as to call upon a
physician to prescribe a regimen adapted both to the re-
quirements of health and the delirium of fever, or the
collapse which follows it. The vindication, in fact, of the
Bank's exceptional issue on these occasions has been either
that the notes were not really required at all, or that they
took the place of those which were hoarded under the in-
fluence of panic ; and it must be remembered that, however
unreasonable the cause or the mode of manifestation of a
j)anic may be, the dread of its unreasoned effects is one
z
338 MONEY AND VALUE.
which those even of the most steadfast judgment are
compelled to take into account.
It has, indeed, been contended that Government has no
right to suspend the Act, but that its restrictions should
under any emergency be rigorously maintained, on the
avowed ground that those who have held back their
resources ought to reap the advantages of their policy-
This argument, however, is in excess of that which the
public interests require. There is no administrative Act,
not even those relating to the supreme interests of " the
liberty of the subject," which may not be suspended on
fitting emergency ; though it would be obviously irra-
tional to define beforehand the conditions under which a
suspension of the law became necessary.
Dangers of an opposite kind to those which have come
under observation might arise if this discretionary power,
exercised under the direct responsibility of the Govern-
ment, could be prohibited. Let us take an extreme case,
for every theory ought to stand the test of assumed cases
of the utmost stringency, though it may not be able to
account for every vagary of individual caprice. A certain
class of speculators are ever ready to take advantage of
popular excitement when expectations are unduly exag-
gerated. They are equally ready to make their gain out
of exaggerated fears. It is quite within the limits of
possibility for a band or " syndicate " of such speculators,
at a time when the Bank's reserves were unusually low,
and credit had been severely shaken, to operate upon the
currency by taking up and hoarding it in amounts which
would appear very large in such an emergency, calculat-
ing that prices would be so forced down by the panic
thus intensified as to enable them to buy securities on
their own terms. The Executive Government, acting with
due insight into the principles on which the currency is
based, could without hesitation counteract such a preda-
tory attack on the general interests of trade, by supplying
the deficiency artificially caused. Those who attempted
to wreck credit would thus have the tables turned upon
them ; not because the issue of notes would directly raise
PANICS AND MANIAS. 339
prices, for that it could not do, but the pressure artifi-
cially brought to bear would be relieved. Those who had
hoarded " money " would have to spend it sooner or later,
and come into the market, not on their own terms, but on
the best terms they could obtain ; and when they did so,
the redundant notes would simply be withdrawn, or rather
drop out of circulation. No loss to the public need be
apprehended in such a case, for the issue would in fact
be made merely to supply the natural demand for circu-
lation, not with the view of " regulating the currency "
(II. 14). It is those who attempted thus to disturb it
who would find themselves working against the natural
laws of supply and demand.
A position not unlike the case supposed is actually
brought about during a " panic," though notes may not
actually be hoarded. For credit is then in fact locked
up. Not only may the timid withdraw their " money "
from use altogether, but the usual currency of loans is
impeded. Under ordinary circumstances any one with
good securities will not take up money upon them until
he requires it ; but when once a dread of scarcity arises, an
exceptional anxiety is felt to secure it beforehand. It
may remain in bankers' hands, but unused, for it will be
obvious to them that it does not fall within the average
balance which, under all ordinary circumstances, they can
safely venture to employ. It is "bespoken" specially,
though not immediately wanted. Thus, though the amount
used is not increased, the loans, being taken for longer
periods, will form an unnaturally large aggregate as taken
at any one moment.
The Bank of England, as the ultimate resort, is then
hardly pressed, not by its own necessities, but to aid
those of others; and if the temporary derangement of
credit is so great that exceptional relief has to be given,
the more distinctly it is then given as exceptional the
better, and there is no doubt that its notes do convey in
the most absolute form the purchasing power immediately
required. If credit were generally degraded, and not
merely shaken, a larger amount of coin or substitutes for
z 2
340 MONEY AND VALUE.
it might permanently be required : we should have drifted
back a step towards a semi-barbarous state of mutual
distrust ; but there has never yet been any indication of a
calamity of this magnitude. If the knowledge that the
Bank has authority to issue an extraordinary amount of
legal tender notes allays panic, and gives assurance to all
that the system of credit is not to be suffered to break
down, there is no practical use in insisting upon what has
always proved to be the fact, viz., that more notes
are not really required. It is enough to have the assur-
ance that the currency itself really is sound.
Whether the Bank's ultimate reserve is as large as
prudence requires, considering the magnitude of the in-
terests concerned in it, is a question which may fairly be
discussed ; so also, whether the Issue and Banking Depart-
ment might not be altogether separated ; the functions of
the former being assumed more directly by the State : or
again, whether any means could be devised by which the
Bank of England, as the central bank for all other bankers,
might command more efficient support from them either
for precautionary or remedial measures. Any such changes
may fairly be urged on their merits, and if better organi-
sation and more perfect co-operation can be brought about,
an unquestionable advantage will be secured. Much may
be done by knowledge and forethought to mitigate the
aberrations of international exchange, and avert an in-
jurious strain upon credit, but only in so far as these
means may tend to bring the inevitable perturbations of
the industrial world more fully within the scope of the
great law of average can they be of any avail.
Many of the fallacies which give rise to exaggerated
expectations at the time of the Bank Act of 1844, as to
its restraining effect upon the course of trade have passed
away in the light of fuller experience ; yet still the belief
lingers that the whole monetary condition of the country
may be in some way controlled by regulating the action
of the Bank upon the currency. But no such means can
counteract the effects of a perversion of enterprise or a
waste of capital in adventures which are radically un-
PANICS AND MANIAS. 341
sound : the laws of production will work out their necessary
results. The attempt to provide by anticipation a special
remedy for cases of extreme pressure which may conse-
quently arise, would probably be found to involve far
more serious objections than the relaxations of the law
with the sanction of a Government responsible to the
country.
12. Panics and Manias. It is very well known that
every inflation of prices which has preceded a panic has
been caused by some characteristic delusion. Before 1825
it was joint-stock banks that were to create wealth at will
all over the country. Before 1836 new El Dorados had
been found all over the world, only waiting the applica-
tion of British capital. Ten years later no enthusiasm in
railway enterprise could be injurious, for all the money
was to be spent at home. Before 1857 one very prevailing
delusion had been that, owing to the then recent discoveries
of gold in California and Australia, "money " was always
to be cheap and abundant. Before 1866 one financial
house of very great influence had, for the sake of profits
exceeding the ordinary rate of remuneration, attempted to
prop up numerous undertakings where the capital embarked
had been hopelessly lost (III. 6), and notably most
flagrantly disregarded the character of the schemes which
they supported. A reckless misapplication of capital
obtained by means which, in mere point of form, were
open to no objection, was the result ; and the crises which
followed were little more than an exposure of the true state
of accounts of those who had borrowed largely, accom-
panied by a sharp spasm of dread on the part of lenders
that no one was to be trusted. The revelations of the
Foreign Loans Commission and the recent exposure of the
way in which joint-stock companies, limited, are "pro-
moted," show that we have not been free from such
delusions in more recent times ; though this mode of
association is quite well adapted to most forms of enter-
prise which are fit subjects for joint-stock organisation
at all.
When a superfluous currency was regarded as a proof
342 MONEY AND VALUE.
of substantial wealth, over-issues of notes no doubt led to
capital being rashly lent, and this again led to reckless
purchases and an undue inflation of prices. It was easier
to blame the banker's note than his want of judgment for
the consequences which ensued. Those who deal only
with the more abstract forms of money are sometimes apt
to lose sight of the essential differences which may be
behind them. They see only the apparently sudden
collapse of credit, and assume that this is the cause of the
disasters which are made manifest. Any question as to
the forms of credit, or any far-fetched reason that in-
genuity can invent, is eagerly adopted to avoid facing the
wholesome but unwelcome truth that only that capital
which is faithfully spent in the support of well-directed
labour can yield value in exchange.
A very few words will suffice to show how entirely the
kind of schemes which characterise a speculative mania
lie beyond the true field of commercial credit or industrial
enterprise. Gambling in commodities soon comes to an
end. It is generally founded on some basis of fact that
the value of the thing dealt in is actually enhanced by
scarcity. To buy up and monopolise the whole stock of
any article of consumption is, in these days of rapid com-
munication all over the world, an operation which finds
favour only with the writers of sensational novels.
Traders must follow and not attempt to force the law of
supply and demand, though wildly exaggerated estimates
on the one side or the other may occasionally obtain
credence. But such transactions as these afford little
scope for the spurious financial ingenuity which brings
about a mania. For this it is required that the imagina-
tion should be excited with the largest possible expectations,
with the smallest possible necessity for present actual
outlay. From the South Sea scheme and the Mississippi
bubble downwards, this has been the characteristic feature
of all such delusions. The amount required for present
expenditure is comparatively insignificant. The shares
sold at preposterous premiums represent in form the " capi-
talized " value of income to be earned without limit in
PANICS AND MANIAS. 343
future years. (III. 6.) The usual dispensers of credit
do not support such amazing developments of enterprise,
and are thrown out of the field. Special banks and
" financial " associations are formed to " promote " what ?
The " floating " of the undertakings, by which is meant
the sale of the shares at a premium. Of course if new
capital can be brought in merely to buy previously existing
shares, prices must advance. The nominal success is a
mere question of arithmetic, but affords no proof whatever
that any productive work has even been attempted. As
long as the feeling of elation can be kept up there is
literally no limit to the quotations at which shares may be
bought and sold, provided always that the buying and
the selling go on together, so as to be in i'act nothing more,
in the aggregate, than mere interchanges, and it is just as
easy to write tens of thousands as hundreds under such
conditions. The whole is in one vicious circle, from which
escape with their unearned gains may be possible for a
few, but anything like a general attempt to sell betrays
the utter baselessness of this fabric of spurious credit.
Indeed the victims are often half conscious of their
position, and the prayer after a while is for only a few
days more of the mania in which each one may hope
to sell out before his neighbour.
All the millions thrown about as premiums on such
occasions may be set down as mere phantasms. It is
a needless exaggeration even to talk of their loss. The
industries engaged in supplying the materials for further
" productive " works may be in the first instance so stimu-
lated that prosperity appears to progress by "leaps and
bounds " as long as the period of borrowing lasts. It is
only when the test of ultimate utility comes to be applied
that the chaff is ruthlessly sifted out from the wheat. It
is, materially speaking, very much the same as though the
money had been consciously expended on luxurious super-
fluities of no permanent value; but the effect is widely
different, for many of those who are led into extravagance
of the kind are unable to sustain it. Those who have
laid themselves out to supply the wants thus created are
344 MONEY AND VALUE.
forced at considerable loss to find other means of employ-
ment, and the social dislocation which ensues entails many
aggravated evils. Nevertheless, though many individuals
may be hopelessly ruined, it is hardly possible to antici-
pate the national income of future years for unproductive
schemes. Some may be hampered by long-reaching obliga-
tions, such as arise from the " calls " made on shares for
railway construction, or future instalments on loans ; but so
far as the general fund of substantive capital is concerned,
this is a transfer only which cannot directly diminish the
amount available for use. An infinity of waste and misery
is often caused, not from any real want of capital, but
partly from an inane attempt to save that which is lost
beyond all hope of redemption, and still more from a want
of discrimination between the fair risks inseparable from
all enterprise, and the ruin which has inevitably followed
the most preposterous imitations of it.
There are different ways and degrees, even during a time
of speculative excitement, in which undertakings may be
unsound. A design may be fairly planned, and adequate
provision made for working it, except that the capital
provided is not sufficient for its completion. The share-
holders of a concern in this position have rashly placed
themselves at the mercy of lenders in no way pledged to
adopt their undertaking, and come into the loan market
with only half-finished work at a great disadvantage, espe-
cially when over-credulity may have been followed by
undue suspicion and timidity. A scheme so devised is
financially unsound, even though it have in it elements
which might ensure success if fairly worked out. Some
again are utterly rotten. Got up perhaps to buy some
land, or mine, or concession from some promoter, and
with borrowing powers moreover, so that the small value
secured goes as the only asset to some special creditor.
Between these come many schemes not irrational in them-
selves, but altogether overweighted. Many a design might
perhaps do very well with a moderate capital and a good
working staff. But it is charged with some outrageous
addition to the capital really required for promoters, who
PANICS AND MANIAS. 345
" rig the market " so as to get shares sold at a premium
not for the benefit of the undertaking, but for the gain of
those who abandon it. Then there will be a Board of
Directors and officials enough to swamp double the profit
that would satisfy a competent executive. This was the
type of a large number of the joint-stock companies,
limited, which were brought out a few years ago, many of
them apparently feasible enough if there had ever been
any honest intention of giving the workers fair play. But
a good scheme in such times is a thing to sell ; the work is
a matter of ignoble detail for any one to attend to afterwards.
The collapse of such credit as this is an unmitigated gain,
though it may come in the guise of a newly discovered
loss, and though it may take some little time to readjust
the conditions of working industry which have been thus
disturbed. Aberrations of this kind on a large scale are
a serious calamity, especially when, as has recently been
the case, not only different sections of the community but
different nations have entered into rivalry in a reckless
spirit which has disregarded all the fundamental laws
which govern the creation of value. Still the great stream
of commerce and industry flows on with wonderful little
disturbance from causes which attract so much casual
attention, though there can be no doubt that our progress
not merely in wealth but in the due diffusion of it, which
is of quite as much importance to the well-being of the
body politic, is materially checked by such perversions of
our resources. As far as the limits of the present question
are concerned, we come back to the old very plain and
wholesome truth, that, while the forms and machinery of
credit are an inestimable convenience and economy they
cannot in any way determine the nature of the work
which can be done by their means. Security and pros-
perity can only be found by looking behind them to the
uses to which capital is effectually applied.
1,1 JUJ A ii
APPENDIX II.
THE DEPRECIATION OF SILVER AND THE INDIAN
CURRENCY.
THE recent fall in the relative value of silver is so
marked an event in the history of the precious metals, and
is of so much importance to our Indian Empire, that the
subject seems to call for some further notice in detail.
My remarks will be confined chiefly to the application of
those principles which have already been discussed, with
reference both to some of the extreme opinions held as to
the effects of this perturbation, and also to the artificial
means proposed, in some quarters, to counteract the natural
adjustment of the relative value of gold and silver as
measured each by the other.
1. Changes in the relative value of silver are no new
phenomena. It will have been observed that such changes
are nothing new in the course of events since the dis-
covery of the New World ; though, since the early part of
the eighteenth century, the proportion maintained both in
Europe and America has varied only within comparatively
narrow limits. Asia has followed rather more tardily ; and,
as has been noticed, Adam Smith stated that the ratio of
twelve parts silver to one gold, subsisted even in his time
in China. Their experience of a fall in the value of the
former or at all events of a change in the relative value of
the two metals must therefore be much more recent than
our own. American treasure has certainly for many years
past, found its way through Europe to Asia in a continuous
THE DEPRECIATION OF SILVER, ETC. 347
stream both round the Cape of Good Hope, by the way of
the Levant, and over the Siberian frontier. Baron Humboldt
estimated the amount early in the century at fully equal
to 5,000,000 sterling. The precious metals now bear,
practically speaking, the same relative value throughout
the civilised world.
2. The total stock or present supply of gold and silver
throughout the world cannot le estimated. T shall only
enter very cursorily upon the question of the various
estimates of former supply; partly because these, however
carefully made, were necessarily founded on very imperfect
data, and further and chiefly, because the conditions of
commerce throughout the world, and of the industries
more or less directly connected with it, have changed so
rapidly that we are only now beginning to test by ex-
perience the quantity that can be utilised, either as coin,
or as bullion held for international traffic. Exact sources
of information are so utterly wanting as regards oriental
stock or production, now or at any former times, that it
seems almost an aberration of statistical ingenuity to
attempt to reduce estimates to exact figures on such a
question, and present a total which shall fairly represent
the aggregate which is in reality affected by the changes
now in progress. Although abating somewhat of the show
of precision, we shall in reality be dealing far more strictly
with facts, by confining ourselves to the experience afforded
by the effect of operations comparatively well known on
this vast but indefinite aggregate ; and shall be better able
to infer its extent from the examination of these effects
than from any elaborate compilation of statistics which
must be extremely imperfect, and cannot possibly be
verified.
Tt is difficult to determine the order in which the many
causes bearing upon this very complicated question may
best be considered. I shall refer first to the changes
during comparatively recent times in two important
currencies. Next to natural changes affecting the sup-
348 MONEY AND VALUE.
ply of the two precious metals severally, and to the
exceptional requirements of trade which gave occasion for
an unusually large export of bullion to Asia within that
period. Then, to the reaction which eventually followed a
prolonged period of abnormal excitement, especially in
Oriental trade, aggravated by further changes affecting the
production and marketable supply of silver. And lastly, I
shall again refer to the causes which must tend to dissipate
and to mitigate the effect of such changes on the exchange
value of the precious metals.
3. Changes in the, currencies of the United States and of
France. In the early days of the Eepublic a gold dollar
was legally current in the United States of America at
fifteen times the value of the silver dollar of the same
weight and proportion of fineness viz., 416 grains troy
nine-tenths pure, being the same as the old Spanish dollar ;
but the value of gold in the open markets of the world
being somewhat above this proportion, it inevitably flowed
out, leaving the silver, which thus became practically the
sole currency. In 1837 the weight of the silver dollar
was reduced to 412^ grains, and the gold equivalent of it
fixed at 2 5 '8 grains of the same standard of purity, being
in the proportion of very nearly 16 parts [15*988] silver
to 1 gold. The gold coins were struck of multiples of
this unit : 5, 10 dollars, &c. as convenience dictated, but
these proportions were the bases of the standard currency.
The rate thus fixed for silver is expressed in British standard
at 4s. lid. per oz. (nearly) : a price sufficiently below that
which ruled in the open market to encourage the export,
while yet the difference was not so great as to prevent the
more convenient gold coin from being received readily
into the home currency as a fair equivalent. Under these
conditions the outflow of silver was, under then existing
circumstances, so large and continuous that by an Act
passed Feb. 21, 1853, the coinage of it could be restricted
to the fractional parts of a nominal dollar of 384 grains ;
(legal tender to the extent of $5 only), to be used merely
as a token currency representing aliquot parts of the gold
standard coin ; and, practically, a gold standard was fully
THE DEPRECIATION OF SILVER, ETC. 349
established long before 1861, when the outbreak of war
led to the suspension of cash payments altogether.
In France the ratio of 1 part gold to 15f silver had
been formally established by law since A.D. 1803. This,
as expressed in British standard, gives a price of 5/0 f per
oz. nearly ; and as long as the price in the general market
remained under this rate, the old silver five franc piece of
25 grammes weight ^ pure (or in English terms, 385*808
grains troy 6 \V.) was practically the standard coin of the
country. And even though some large portion of the
14,000,000 of gold rejected by Holland on their adoption
of a silver standard in A.D. 1847-9 was recoined in France,
no movement of importance took place in French silver till
1853, when the price in the open market rose to about
one per cent, over the equivalent fixed by law. A steady
outflow then commenced, stimulated from time to time by
a higher rate of difference, but continued also on even a
narrower margin, until by A.D. 1856 the great bulk of full
weight five franc pieces in circulation had been drawn out
and " napoleons " substituted for them, weighing 6457
grammes ^ pure (99'561 grs. troy If W.) being in the
same ratio of 1 gold to 15 J parts silver; only, the former
being the cheaper metal for the time, was established in
the currency. So much so, that by a convention finally
published in that year between the different countries of
the " Latin Union " (viz. France, Belgium, Italy, and Swit-
zerland) which then formerly adopted the same system of
coinage, the issue of silver was restricted to " tokens " of a
lower standard (viz. '835 instead of '900 parts pure) in
limited amounts to be determined by convention. The
total value of the French currency thus influenced was
estimated at .340 millions. It by no means follows that
any such vast amount was moved, but the change from a
silver to a gold basis was fully effected. Taking this range
of about thirty years, these operations were carried out at
ratios varying in the open market from rather less than 16
parts to rather more than 15 parts silver, to 1 of gold;
leaving the ratio in 1866 and for a few years afterwards at
about 15 J to 1.
350
MONEY AND VALUE.
The subjoined table gives the price of British bar silver
corresponding with the equivalents of gold and silver
assumed in various proportions. These figures afford a
means of comparison expressed in the most familiar terms,
and may be useful for reference. A higher price than
that set opposite to the equivalent would indicate that
silver is worth more in the general market, and preferable,
therefore, whenever there is an export demand for the
precious metals. A lower quotation would of course
indicate a similar advantage to be gained by exporting
gold. The differences shown by comparison between these
fixed rates and those ruling at any time in the open
market, are of the kind referred to previously (II. 31 IV.
16, App. I. 80), and give the measure of the motive
power which tends to overcome the friction opposed to
any change. I append further the London quotations of
silver since 1833 :
Gold. Silver. JJ^
1 to 18 =4/4' 39
1 184 = 4/2-*
1 19 =4/1*
1 19J.-^4/0- 36
1 20 =3/11
Highest price touched in March
and July, 1859 5/2J - 1 gold to 15'028 silver.
Lowest price touched in July,
1876 3/1 Of = 1 gold to 20-17 silver.
The shillings and pence represent, of course, only fractional
parts of the British sovereign : thus 5 shillings = 60 pence =
_ 6 __ or J of a sterling. It must be remembered that the
British standard for silver is 222 dwts. fine in the pound troy
of 240 dwts., while the British standard for gold is 22 carats
or f f ths = ^ths fine. As alloy is eliminated, as of no value,
in bullion, the result is that though the quotation of both is
given per oz. troy of 480 grns., in reality 444 grns. of pure
silver are quoted as against 440 grains pure gold. A correc-
tion has been made accordingly, giving the price which would
have to be paid for the proportionate weight indicated of
silver of the same purity as the gold.
NOTE I.
told. Silver. * SM.
1 to 10-7/10' 3
Gold. Silver.. B .jJ' r o* d '
1 to 15 =5/2*
1 11= 7/1 73
1 , 15J-5/0' 84
1 12 = 6/6' 58
1 , 16 =4/10-*
1 13 = 6/0' 53
1 , 16J = 4/9' 15
1 14 = 5/7*
1 , 17 -4/7' 47
1 , 174 --=4/5*
THE DEPRECIATION OF SILVER, ETC.
351
4. Natural changes affecting the supply, and the general
uses of gold and silver. The first point that strikes atten-
tion here is the substitution to a very large extent of gold
for silver in the currencies of Europe and America. Whence
came the available supply ? Baron Humboldt estimated the
produce of South America at the beginning of the century
at 9 \ to 10 millions worth, and that of Europe, includ-
ing Western Siberia, at one million more ; which aggregate
was increased by some two or three millions up to A.D.
1809 when the revolt of the Spanish American colonies
threw all mining operations there into confusion, but the
yield after a while seems to have been maintained in all
at about ten to twelve millions of pounds worth : the total
value of the silver being at the least three times that
of the gold produced. The great extension of gold mining
in Eussia (Western Siberia) first disturbed this balance,
NOTE II.
London Quotations of Bar Silver per Oz. Standard, taken from
the Returns of Messrs Pixley & Abell.
7
A.D.
Ann. Avrge.
Pence per oz.
A.D.
Ann. Avrge.
Pence per oz.
A.D.
Ann. avrge.
Pence per oz.
1833
... 59^-
1848
... 59J
1863
... 61f
1834
59 i!
1849
... 59j
1864
... 61f
1835
" * * 16
1850
... eo^j-
1865
... 61^
1836
... 60
1851
... 61
1866
... 61J-
1837
- 59A
1852
... 60J
1867
... 60*
1838
1853
... 6H
1868
1839
:;; eof
1854
... 6lJ
1869
:;; eo^
1840
... 60|
1855
61-^-
1870
... 60^
1841
1842
1843
-. 60^
... 59^
... 59-^-
1856
1857
1858
"'. 6l
... 61|
1871
1872
1873
... 60J
... 60A
... 59J
1844
... 59J
1859
1874
... 58,4-
1845
... 59J
1860
1875
... 56f
1846
... 59^
1861
... 60^
1876
... 52}
1847
1862
... 61^
1877
54J3
/ N.B.-
London
fine.
These quotations are given as they are made in the
Bullion Market, for British standard silver 222 dwts.
352 MONEY AND VALUE.
the value having been increased from a very small amount
in A.D. 1820 to over 3,000,000 worth in A.D. 1848. Then
came the discoveries in California yielding at first 10 to
12 millions, followed in 1851 by those in Australia giving
even larger results, though the outturn from these two
latter sources has now declined to within 14,000,000
together. Still the aggregate supply from what may be
termed new sources was very largely increased, while the
proportion of gold to silver was reversed; the estimated
total value of the former being at least twice that of the
latter. These figures, however, do not afford any measure
of the total production, or still less of the total stock of
the precious metals throughout the world open to civilized
commerce. There is no reason to suppose that the sources
of supply in Asia have failed, Africa also has always
exported gold from both its Eastern and Western coasts.
The old civilisations in the East have yielded both gold
and silver from time immemorial, and, when their
numbers and prosperity were comparatively great, must
have accumulated vast stores of metallic wealth which,
according to changing circumstances, will, to a greater or
less degree, be set free for general uses. Asia is evidently
able to receive some large portion of our supply, but we
cannot tell what proportion this bears to its total require-
ments, or to its capacity to take up the precious metals ;
so that this known quantity affords no basis on which to
estimate, with any degree of accuracy, the effect of any
future excess or falling off of Western supply on the nations
of the East. I refer specially only to those sources which
from our point of view in Europe are not only best known,
but have been made most directly available for effecting
the changes referred to. 1
There is shown, thus far, a larger supply of gold and a
more general use for it. Some high authorities have been
of opinion that this supply had led to a reduction in value.
So far as this were the case a proportionate increase in the
1 Some of our best statists have too frequently fallen into the error
of heading their tables as of supply "from ail the world ;" whereas, on
examination, they are found to embrace only those sources regarding which
specific returns can be obtained.
THE DEPRECIATION OF SILVER, ETC. 353
weight of bullion used in the circulation might be assumed,
but it is by no means a settled point, whether this alleged
fall in value has been permanent : certainly up to 1873
whatever fall there was affected both metals in very nearly
equal degree. Beyond this the rapid increase of popula-
tion and of industry, both in Europe and in the United
States of America, especially of late years, has led to a
great increase in the power to hold metallic money, both
individually and for the purposes of international com-
merce. But whatever the growing want thus created may
have been, it was more than amply satisfied by the supply
from Russia, California, and Australia.
It should be noticed however that the operations in the
United States and in France were not altogether contem-
poraneous, and thus when the former resorted to a paper
currency in 1861, the gold set free was certainly available
to supply the continued demand of the latter. But too
much weight must not be given to this consideration, for
its relative value was independently supported by demand
from Asia, and moreover very great progress had been made
in the French operations before that date. The shipments
of gold to the East from Great Britain and the Mediter-
ranean ports which were about 5,500,000 for the five
years ending 1860, amounted to fully 25,500,000 during
the five subsequent years. Though this does not prove
that the supply would have been enough for the wants
both of the United States and France within the period
referred to ending in 1866, it certainly affords reason to
suppose that, at the most, a few years' further production
would have made good the deficiency.
We have before us, however, not merely the extension of
the aggregate currency, but, to a large extent, the substi-
tution of gold for silver, first in the United States of
America, and afterwards in Europe. Every factor in the
equation must tell in the adjustment definitely expressed,
whether familiarly, as the price of silver, or more precisely,
as the ratio which one metal bears to the other, So we
have not only to consider how the gold was obtained, and
what was done with it, but also how silver was extruded,
A A
354 MONEY AND VALUE.
and extruded so rapidly with so little change in the
relative value of the two metals.
5. Considerations which govern the Transport of Coin or
Bullion from one Country to Another. Two essentially dif-
ferent considerations have to be held distinctly in mind. 1st,
the capacity of a country to receive and retain the precious
metals either as bullion or coin ; and 2nd, the means of
effecting an exchange of them, at any one time, for value
in some other form which can replace the cost of them to
the sender, wherever he may require it, in some other
country. In every trade it is essential to " find returns,"
and though these may 'be made in the form of Bills of
Exchange, that only generalises the difficulty, but does
nothing to remove it. For these bills must be based on
value sent in substantive form directly or indirectly from
the country where they are drawn to that in which they
are made payable. The subject is often discussed as though
bullion would find its own way to the place where it was
wanted a one-sided way of talking, which is very apt to
lead to .begging the most important part of the question,
though there is a very large measure of practical truth in
the doctrine that such interchanges are self-adjusting in
the sense that they are best and most safely worked out by
the unrestricted exertions of those concerned in them.
These two considerations are indeed very closely related.
The ability of any country to receive the precious metals
without relative depreciation of their value must ultimately
govern the transmission to it of bullion ; but the more im-
mediately pressing question will generally be as in the
present case How to effect its introduction or in other
words, How to get payment for it both promptly and suitably.
The chief markets for silver are in Asia, which comprises
much the greater part of the population of the world, and,
speaking generally, is moreover at a stage of civilisation in
which metallic money, coined or uncoined, is far more
largely used and hoarded in proportion to the industry
supported than in communities where industry is more
highly organised. A long course of comparative peace and
security has led, especially in India and the regions about
THE DEPRECIATION OF SILVER, ETC. 355
the Malacca Straits, to a great increase in numbers and
in commercial activity. The suppression of piracy in these
Eastern Seas has been an incalculable gain to humanity.
Imperfect and partial as these advantages are, they are yet
of such a kind that their effects have tended, and will
tend to grow with measured, though accumulating rapidity,
and the power both to pay for and to hold money for
domestic uses is but one sign of a dawning prosperity
which we have good reason to believe is well assured.
6. Eceptional Causes of Demand for Asiatic Products in
Europe since 1848. Over and above these, there have been
a succession of temporary and exceptional causes which
have adventitiously stimulated the demand for Asiatic
produce in Europe since the great discoveries of gold in
1848, and it must be kept in mind that the movement
of an unusually large amount of metallic money does not
so much imply an extended traffic, as a large balance of
value arising over and above the ordinary adjustments
of commerce.
These causes may be summarised in a very few words :
trade with Asia generally had been extended since that
date, with much vigour and success, even before the war
with Eussia in 1854 and the interruption of the Black
Sea trade gave a very appreciable stimulus to the effectual
demand for various Eastern products. In 1855 a far
greater disturbing cause arose from the failure of the
silk crop throughout Europe, throwing a demand upon
China Japan, and India which, for a succession of years
represented an annual value which cannot be taken at less
than 8 to 10 millions. Then in 1861 came the " cotton
famine " consequent on the war in the United States, the
incidents of which are so recent and so well known that it
is needless to refer to them at length. One point however
may be noted : the enhanced cost of cotton manufactures
sent to all ports in Asia made a large set-off against cotton
sent from some parts only, while, as the export of silk
manufactures is a mere trifle, the greatly increased quantity
and cost of raw silk was a clear addition to the account
against Europe. These are only the chief items of a
A A2
356 MONEY AND VALUE.
generally expanding trade, which stood out as in excess
of the ordinary value of exports from the East.
7. The Consequent Movements of Bullion. The move-
ments in the precious metals to the East are set forth
in the subjoined note, which it will be seen shows a
considerable positive increase in the export of the precious
metals even after these exceptional causes had ceased to
operate. 1 Looking back for thirty years before 1870, we
have first the outflow of silver from the United States of
America, caused by its valuation as measured in gold
in their coinage at a lower proportionate rate than that
which ruled in the general market. The difference was
very slight, and not sufficient to put any strain upon the
movements of bullion. It led merely to the retention of
a larger portion of gold in the new world, while silver
passed on in no larger proportion than was required for
current use in the old. The small operation in Holland
in 1847 and 1848, above referred to, had no appreciable
effect on price, but the depreciation of gold, then very gene-
rally anticipated, probably influenced the first rise in the
quotations of silver in 1849 and 1850 ; but it was not till
1855 that any unusual movement took place in the metal
itself. That year 9 millions were sent out to the East
1 NOTE III.
Table showing the Export of Bullion from Great Britain and
Ports in the Mediterranean to the East.
FROM THE TABLE or THE ANNUAL SHIPMENTS GIVEN IN THE CIRCULAR OF
MR. G. DE QUETTEVILLE, OF LONDON.
1851-1855
1856-1860
1861-1865
1866-1870
1871-1875
1C
If
Gold. Ann. Avge.
4,500,000 900,000
4,706,000 940,000
24,166,000 4,833,000
15,618,000 3,124,000
13,477,000 2,695,000
Go
76 (1 year) 3,21
(77 3,13
Silver. Ann Avge.
23,000,000 4,600,000
67,001,000 13,400,000
65,197,000 13,040,000
21,471,000 4,294,000
26,220,0: 5,244,000
Id. Silver.
3,000 11,096,000
1,000 16,861,000
Total. Ann. Avge.
27,500,000 5,500,000
71,707,000 14,340,000
89,363,000 17,873,000
37,089,000 7,418,000
39,697,000 7,939,000
Total.
14,309,000
19,992,000
The shipments to Egypt are included in these returns, but are not of suffi-
cient amount to affect the general conclusions indicated. There also have
been direct shipments for seme years past to China from San Francisco,
which, during 1877, are reported as amounting to about 3,000,000.
THE DEPEEOIATION OF SILVER, ETC. 357
from Great Britain and ports in the Mediterranean,
followed by an annual export averaging over 13 millions
for the ten following years. In 1857 the export was over
20 millions, mostly to China, in payment for silk. In
1858, after the commercial crisis in the preceding year, it
fell to within 6 millions, rising again to 16 millions in
1859. In 1861 also the amount fell under 9 millions,
but it rose to 14J, 15, and 17 millions respectively
during the three following years of great excitement in
the cotton market. In the five years 18626, more silver
was shipped from Mediterranean ports, chiefly Marseilles,
than from London, but it is impossible to say from what
quarter the supply was actually drawn. This much is
certain, a large balance of gold was retained by France in
exchange for silver taken to satisfy a very urgent demand
for the East. But it must be remembered that though
silver was chiefly taken, gold also, especially since 1861, was
accepted in India to a very large extent, though as having
no place in the Indian coinage, it was at an unnatural
disadvantage. This point will be referred to hereafter.
8. Exaggerated Enhancement of Prices. Looking merely
to the quotations of bullion, a superabundant supply
apparently made it very easy to make good the deficiency
caused by two great failures of natural production ; but
it may be doubted whether this great facility was any
real advantage to those concerned in affording, or in taking,
the substituted supply. An urgency of demand totally
unchecked by any scarcity of metallic money on the one
side, led to an exaggerated inflation of prices on the other.
Silk rose to two or three times, and cotton to even four or
five times its normal cost, while doubled prices would
probably have equally given all the stimulus that could
have any effect upon production, without requiring so
violent a readjustment of money values in all industries
connected with .or dependent upon these products. Many
drawbacks and comparatively few permanent advantages
attend so sudden an influx of " money." Not that this
country at all events need grudge the treasure paid to our
great dependency, but India during this epoch affords a
358 MONEY AND VALUE.
strong illustration of the difficulty of usefully employing
wealth in this form so suddenly acquired. Taking the
capital of Western India as an example ; its prosperity
was rapidly advancing before the extreme advance of
prices : its progress since then has successful^ continued.
But that period of inflation was marked hy a " mania,"
unprecedented in the extent of its waste, folly, and de-
moralisation, and in the prostration of all healthy energy
which followed the ultimate collapse.
However, as far as the present argument is concerned,
the fact remains that inordinately high prices paid for
silk and cotton, relieved Europe of a superfluity of silver
in a most exceptional manner and to a very large extent.
9. Cost of Transit as affecting the Relative Values of
Gold and Silver. Some points of detail are of so much
importance in reading the indications afforded by move-
ments of the precious metals, that I must again invite
careful attention to them. It has been already shown
(IV. 16) how the charges for transmitting bullion are
counterbalanced by fluctuations above or below the " par "
of exchange, in other words, how they are indirectly
thrown on the general cost, as expressed in Bills of
Exchange, of the commodities for which it is required to
provide payment. If gold and silver are of the same
relative value in two different countries respectively, there
is evidently no inducement to send one more than the
other, but the very slightest difference in these relative
values will influence the preference for one rather than
the other, if there be independently a demand sufficient
to move the metals at all. If we suppose the cost of
transit to be 2 per cent, and the two to be circulating side
by side, say in the proportion of 1 gold to 15| silver, but
the latter to bear a value of 1 per cent, higher (corre-
sponding to less weight, or 1 to 15 '345) at the place of
destination, it would flow out at just half the relative
cost to the exporter. The " gradient of friction " is
already half overcome by the inequality in the relative
values : the favoured metal only would be sent away, when
value was required in this form, but not otherwise. If
THE DEPRECIATION OF SILVER, ETC. 359
the transit charges on gold as the more portable metal
were slightly lower than those on silver it would move
more readily either way. Its "friction" being less, it
could be more cheaply used at any time. It might thus
be in better demand and become relatively dearer. But
this element of value would tell generally in all places,
and it must not be supposed that transit charges or a
difference in transit charges could effect the equivalents
in any one locality only; international adjustments are
made on the weights of metal actually transmitted. Even
at the cost of transit assumed above, no difference less
than 4 per cent, could cause a movement of the precious
metals without the counter-transmission of a correspond-
ing value in some other form, but when this difference is
attained the two metals will independently be exchanged
the one against the other. Thus, if 17 parts of silver can
be bought here for 1 part of gold and the former sent to
Asia where the equivalents were 16 to 1, it is clear that
the silver could there buy T065 part or 6J per cent, more
gold. This is more than enough to pay for all the costs
of transit both ways, and an exchange under ordinary
circumstances might be effected at much less than this
difference. It follows, therefore, that the relative values
of gold and silver cannot diverge, except within such
comparatively narrow limits, in any part of the world
open to civilised commerce, without inducing a movement
by which any greater inequality will be reduced by a
process of direct interchange, and consequently any great
change in the relative value of either metal must be
distributed generally without reference to the ordinary
balance of trade in commodities.
The rates quoted in Notes I. and II. do not indicate a
difference between the market and legally fixed relative
values large enough to have moved silver from France to so
distant a destination as" India or China, much less to have
moved silver in one direction and gold to pay for it in the
other ; but the motive power which caused its transmission
was altogether external to the currency affected. France
had no active part to take. A great stream of bullion was
360 MONEY AND VALUE.
drawn through the country, and an extremely small differ-
ence in value caused gold to be dropped and silver to be taken
up. All the costs were borne by the trade, and fell indirectly
on the consumers of silk, cotton, and other Asiatic produce.
10. Commercial Excitement and Consequent Reaction since
1870. Let us now again take up the question in 1870.
The price of silver was at or slightly under the ratio of
15 J to 1 gold. The outflow of bullion to the East con-
tinued on a scale which would have been considered large
twenty years previously, gold however forming a larger
proportion of the export than at that time. The next
great event is the Franco-German war, and the pay-
ment of the indemnity of 220 millions to Germany.
Glancing merely at economic results, we perceive a great
natural rebound of industrial activity after the two great
wars in Europe and America, followed by an immense
amount of spurious and ill-directed enterprise, which,
even more than over-extended efforts, leads to disastrous
reaction. England had its share of this perversion of
energy, while Germany, flushed with its newly acquired
wealth, and aided by nearly a hundred new banks and
" Credit" Companies, was pre-eminently distinguished by
its attempts to force trade in all directions, without the
least recognition of the law that value must depend on
a rational adjustment of supply to demand. I need refer
specially only to the incidents which more directly in-
fluenced Eastern commerce. The great improvements in
telegraphy and the opening of the Suez Canal made it
easy for any merchant, with the same capital as he had
before employed, to carry out a far larger aggregate of
transactions in any given time. There was no sound
reason whatever for more " distributors " rushing into a
business which could have been very greatly extended
without the application of any fresh means to it. But
this was not the popular notion. If the Suez Canal
could have irrigated every parched field in India and
restored all the ravages of rebellion in China, it would
hardly have sufficed to justify the expectations which
induced competitors of all nations to rush into a field
THE DEPRECIATION OF SILVER, ETC. 361
fondly imagined to be new, only because it was opened
to them in a new and more efficient manner. Disap-
pointment was sure to follow, and it fell at last not
only on us, but with even more severity upon our
German and other competitors. The general balances
of trade were still decidedly in favour of the East: the
export of bullion was nearly 10J millions in 1874, but
casually declined to little over 5J millions in the fol-
lowing year, with trade generally carried on at unre-
munerative rates, and with the spirit of enterprise
much rebuked by continued want of success.
11. Introduction of a Gold Currency into Germany, and
Consequent Increased Supply of Silver. Germany had for
long desired to establish its currency on a gold basis,
and the large sum received as indemnity money no
doubt induced it to enter immediately on the attempt.
In adopting the ratio of 1 gold to 15 silver only
formally retained by the Latin Union without reference
to the value in the markets opened to all the world,
it started with a "gradient" against the movement it
desired to effect. Had the American equivalents (1 to 16)
been adopted, some portion of the silver discharged might
at first have been taken out by the innumerable channels
of trade, and the task of the Government so far lightened ;
as it was every ounce has had to be driven out from the
very first, as it were, with a force-pump.
Holland meantime adopting as equivalent 1 to 15'65,
giving a higher relative value by 1 per cent, for the gold
it wished to secure, reversed, or rather began to attempt to
reverse, its policy of A.D. 1847 to 1849, but seems to have
coined only about .4,000,000 worth on its proposed new
standard.
The total currency of Germany was comparatively small,
probably not more than a third of that of France, but no
happy course of events aided their task of getting rid of
their superabundant silver, and the inevitable delays in
carrying out a scheme thus worked only brought them on
worse times than ever for such an operation. For in 1876
reports were received of the great success of an extension
362 MONEY AND VALUE.
of a well-known mine (the Comstock), and of mining en-
terprises generally in Nevada, to which reference has
already been made (II. 28). It had long been a matter of
general notoriety that these regions in the far West of
America were rich in silver, and the fact was not at first
appreciated that these last new -discoveries added also
largely to the yield of gold. There was therefore a large
supply, not merely available if demanded, but which it was
supposed would be pressed upon the market. Prices had
been falling steadily, and by the end of 1875 had reached
about the ratio of 16| to 1 (4s. Sd. to 4s. 8d. per oz.
Br. Std.), and an attempt, or a supposed intention of an
attempt, on the part of Germany to force sales led to a
sharp panic in July, 1876, when silver touched the lowest
price yet known, of 3s. 10d. per oz., or a proportion of
2017 to 1 gold. It rallied, however, shortly afterwards,
and after some fluctuations has settled for a while at about
17| silver to 1 gold.
12. The Practical Lesson enforced by the " Scare " in Silver
in 1876. This scare has probably brought home a very use-
ful lesson more effectually than it could have been taught in
any other way. For it has demonstrated to all concerned
the utter futility of the attempt to force transactions in
bullion in excess of the existing balance of value which
could be returned in exchange for it. Practically the run
was on the rate of exchange in India. There was a run
upon bills and any other means of immediately sending
home value, but it was the fall in exchange which forced
down silver, not a natural fall of silver which forced down
exchange. There was much lax discussion on the subject,
and the two very different issues above referred to ( 5)
were generally confounded together. But in reality nothing
of any permanent consequence, one way or the other, could
be inferred from the results of operations carried out in so
reckless a manner. If Europe could not -afford to take
cotton at famine prices, neither could India afford any other
means of paying immediately for silver : this was the chief,
though not the sole, cause of the rapid decline, and even
setting aside the ' extreme rates which were the palpable
THE DEPRECIATION OF SILVER, ETC. 363
result of a panic, there is little doubt that an undue
urgency anticipated and exaggerated the relative depre-
ciation which would have been enforced by the normal
operation of any natural causes then known to exist.
The balances due in bullion by England to India had
indeed been decreased in other ways than by the course of
trade. India had borrowed largely in England, getting
money there on easier terms ; and various charges to be
met in England out of Indian revenues had increased
from 6 millions to 16 millions annually. Whether the
government sells bills on India, or buys bills drawn there
on this country is a mere matter of detail as to the best
way in which substantive value can be transferred. The
only point to be decided is whether, all things considered,
the country which pays will be served on better terms by
paying in England, where money is superabundant, or in
India, where it is comparatively scarce. It is not the
place here to discuss whether due economy is exercised in
Indian expenditure, but this much may be said : it is
assuredly no part of sound policy to adjust the financial
arrangements of the country with a view to making
a market there for bullion. On the contrary, the better
tendency of trade is that it should consist of the mutual
interchange of utilities rather than that heavy payments
should be habitually made in dead bullion.
13. No apparent Reason to anticipate Failure in Asiatic
Demand. These considerations are in a totally different
range from those involved in the supposition that Asia
was saturated with silver, and had lost the power to absorb
it. The sign of such a condition would be a general rise
of the money prices of commodities, and a consequent
falling off of exports from, and increase of imports into,
the country affected. Nothing of the kind has as yet been
discerned in India. The falling off in the export is only
shown by comparison with periods when the European
demand was exceptionally stimulated. The special causes
which consecutively led to this enhancement of prices
both in India and in China did indeed last for so long
a time that general trade had become adjusted to them.
364 MONEY AND VALUE.
It was natural enough that a change should create some
alarm, but a very little investigation shows the nature of
it. There is no reason to conclude that Asia will take
less bullion than was supposed, only a little more patience
and discretion must he exercised in introducing the
supply ; hearing in mind always that, though silver is the
sole legal currency in India, and practically the common
measure of value in Asia generally, gold is largely used in
traffic, and its relative value perfectly well known and
appreciated.
It may be said that the mode in which operations are
carried out does not affect the amounts dealt with, and
that the equation of value must depend upon the relative
quantities of metal and the demand for them as money.
But the truth that there is in this remark is not to the
point. It will not affect the ideal mean to which the adjust-
ments of supply and demand must tend, but it does very
greatly affect the steps by which this mean is attained.
Bullion wrongly placed and forced for sale may go for
a time as much below its normal value as any other
commodity, recovering perhaps with a violent fluctuation,
which is an extension of the first evil ; and aberrations of
this kind do far more to derange the course of industry
than any change brought about in the natural course of
events.
There has been no difficulty or sign of any difficulty in
making payments in silver, and all accounts from the
interior of India, of which we do know something, agree
in stating that no rise in general prices followed the fall
in silver. Those articles which were suited for export of
course responded at once to the movement in Exchange.
Every dealer in the country knows how the rate for bills
affects prices as well as every changing quotation in the
markets which concern him. All he sees and all he cares
for is that he gets more money for his produce. He will
not trouble himself as to how that desired result has been
brought about, but his keen wits know perfectly well the
immediate conditions which affect his bargain. But except
in so far as prices were governed directly by European
THE DEPRECIATION OF SILVER, ETC. 365
markets there was no reason why there should be any
change, and none in fact took place.
14. Natural Mitigations of a Decline in the- Value of
Metallic Money. The currency certainly could not become
redundant from a falling off in the supply of silver, and
we may safely infer the same conditions in China and
elsewhere. Silver, being cheaper to us, enabled us to offer
better terms for all exports, and this has certainly not
been counteracted by any general rise in local prices.
Speaking roughly, the fall in exchange has been a pre-
mium of 10 per cent, in their favour, which no doubt has
acted directly to the same extent as a discount against
imports, with the apparently satisfactory result, in India,
that the inducement on the one side has had a decidedly
more marked effect than the discouragement on the other.
Shipments have largely increased of products first brought
within the range of European demand by this change in
the measure of relative value. For this general rise, as it
would appear to be from this side, though in fact limited
to articles suited for export, had a much more searching
and widely-spread effect than that previously induced by
demand for some few particular commodities only. Wheat
especially promises to become a staple article of trade,
nor is it merely drawn out from native stores, but a new
branch of industry has been created in many places which
it may be hoped will gain strength enough to stand any
future adverse changes in the market, and we may be sure
that the growers themselves are getting some of the first
benefits of the change.
Considered by itself, the normal effects of such a stimu-
lus to the import of bullion would be an increased supply,
continued until the aggregate increased quantity led to
diminished value, or "purchasing power," shown by
generally enhanced prices (I. 22). So that before the
advantage gained by such a fall could be wholly lost to
the producers the whole quantity of the currency must be
increased in the inverse ratio of its total fall in value.
Further, over and above all other causes which may enable
India to absorb silver, this alone should give place for an
366 MONEY AND VALUE.
effective demand for a weight equal to 10 per cent, of the
whole existing currency without any further depreciation
of value. All future imports also must be increased by 10
per cent, in weight of metal, and this will affect not merely
coined money, but also all bullion used for international
exchange. This general " shrinkage " of value will tend
to a demand for an increase of quantity proportioned, not
to any one year's surplus, but to the whole aggregate held
throughout all Asia, and indeed throughout the world.
It is on this principle that we may rely to mitigate the
effects of any sudden or extreme decline in the value of
silver. But this great world-wide operation cannot be
forced. The opportunities for putting it into circulation
must be watched and waited for. The progress of accumu-
lation, and consequent decrease in local value must have
time to spread by degrees from the centres of trade
throughout the countries affected, which will not the
less surely absorb quantity without violent change in
value. This implies some check to supply ; the experience
afforded by the late scare will show that miners cannot
capitalise the whole of their property in a few years
without making needless and disproportionate sacrifices.
Estimates generally were indeed especially exaggerated in
respect to time, during the recent period of depression.
Germany was supposed to want to sell all her silver at
once. When the calculation was published that the Great
Consolidated Virginia Mine contained 150 to 300 million
dollars' worth of ore, it was assumed that the whole of it
would be raised and thrown on the market in the shortest
possible time. If a mine were like a crop of wheat which
must be cleared off the ground that another may grow on
the soil, there would be some show of reason for such
urgency. In the same spirit a temporary and perfectly
explicable dullness of trade and scarcity of local returns
at the shipping ports was taken to indicate a panic
throughout Asia, and a loss of confidence in the metal,
which had been the chief measure of value there from
time immemorial.
But it may be said in reply by some of those most
THE DEPRECIATION OF SILVER, ETC. 367
nearly interested : " This is nothing to us. We have got
the supply and want to sell it at once." Just so. Every
holder of commodities might say the same in turn ; but
gold and silver, like all other vendible articles, must abide
the natural demand for them, and the necessary cost of
production will ultimately govern their exchange value.
The longer these principles are neglected the more heavily
will the cumulated loss fall in the long run upon those
who find they have a supply for which there is no demand,
or a demand to satisfy for which they can find no supply.
The vastness of the one great market concerned in the
precious metals, and the infinite number of ways in which
they can be used, give a larger scope for the adjustments
of their values than for those of any other commodities.
But this truth tells both ways. Values not only can, but
must eventually be equalised generally throughout the
world in spite of any partial attempt to control them.
15. The Ratio of Value of the Precious Metals may be
anticipated and declared, but cannot be controlled by Legal
Authority. Those who contend that the relative values
of the two metals can be fixed by law, do not appear to
realise how completely the attempt is beyond the analo-
gies to be found in the practice and customs of all
interchange. Higher or lower price means more or less
money for a fixed quantity of some other product : or a
greater or less quantity of any product may be bought
for a fixed sum of money. But to tie down both sides of
a bargain is a notion that must be discarded as soon as
it is clearly realised. We may talk loosely of a "fixed
price" of gold, but that is simply the expression of a
definite weight of the metal The fixed measure of any-
thing by itself may be resolved into a fixed quantity of
itself, but in no other sense is the notion of a fixed relative
value in any way tenable, except on the assumption that
all the terms upon which the several equations of value
depend are relatively invariable.
It is indeed sometimes alleged that experience has
shown that the relative value of gold and silver can be
fixed by law : but the fact is that such authority has been
368 MONEY AND VALUE.
of avail only as far as it was supported by laws of far
greater and more subtle efficacy. The crucial question for
a government to decide in order to secure for a time the
concurrent circulation of two metals side by side is, What
will be the relative price which they will bear hereafter
in the great markets of the world, the one as measured by
the other ? not forgetting to make due allowance for the
effects of its own operations. If this ratio be determined
with tolerable accuracy there is no reason why they should
not retain for a long time their several places in one
currency. But the question is, How to adapt these regula-
tions imposed by the State to the course of events upon
which it may indeed exercise some temporary influence,
but which it is powerless in the long run to control. It is
pre-eminently one for the exercise of a wise forethought ;
nor is very minute accuracy always required to secure this
end. Neither metal will move spontaneously : the nature of
the friction which has to be overcome before any change can
take place has I trust been sufficiently shown. But when
pressed beyond what these considerations will support, the
argument dreaks down. Thus it is said : Gold and silver
may be maintained in a currency at a fixed ratio by
adjusting the amount of their issue. The metal more
valuable in the general market than in the currency may
(it is said) be issued without limit. No doubt it can be
issued, but it can only be obtained by the State buying it
at the higher valuation, and if the difference be sufficient,
there is no limit to the operation which might be worked
at its cost. For as much must be bought on the one
hand, as is sold or issued on the other, and relative values
are little affected, though the government loses on every
transaction. The more dangerous fallacy however lurks
in the contrary notion, that the metal to which too small
a weight is assigned in the local currency can have its
value maintained by limiting its issue. True again as far as
these terms go, but the conclusions inferred are far broader
than the premises. If coin is scarce it may be kept at a
local premium on its value as bullion in the general
markets. So also might a limited issue of paper notes
THE DEPRECIATION OF SILVER, ETC. 369
But in either case, and almost in equal degree, the exchange
value will be subject to local influences and delusions from
which, the general market for bullion is to so great a degree
exempt, and in virtue of which exemption the precious
metals, each working out independently a world-wide
average value, have become pre-eminently money through-
out the world. If the United States, for example, were
largely to introduce silver into their currency as legal
tender money, trusting to keep up the value of it by
(ultimately) Jimitincf the coinage, the only probable result
would be excessive and futile fluctations. The immediate
demand would no doubt cause a great rise in its relative
price. But this will be lost as soon as this exceptional
(not to say artificial) support is withdrawn, and it does not
follow as it would in a trade under ordinary conditions
that the decline would facilitate export. For the enhanced
value arises from local causes, and a fall in price simply
brings it to the general level which can be supported in
the open market. Governments form no exception to the
rule that the dealings of buyers and sellers tend always
to raise or depress prices against themselves. There
must] be a stronger cause of changing needs behind to
justify their operations.
It is hardly needful to insist upon the inevitable futility
of any government attempting to retain the dearer of
two metals in a currency by the mere dictum of authority ;
for no legal enactment can be so framed as to do more than
ordain that either of two definite coins of two metals re-
spectively shall be deemed a legal tender. The payer, not
the receiver, thus has and must have the option as to which
he will offer in discharge of his obligations, and his debtor
is bound to receive it. To give the choice to the creditor
would be, in fact, to lay upon the payer the intolerable
obligation of being prepared with both. If the receiver
wants the dearer coin he must come to terms with the
payer that is, he must pay a premium for it, and if the
difference be considerable nothing could prevent dealers
settling their terms and prices, beforehand, according to
the mode in which payment was to be made, and thus
B B
370 MONEY AND VALUE.
practically setting aside the legally declared values
altogether.
Before concluding this notice, I desire to refer more
specially to some points directly affecting our Indian
currency, and the trade in Asia generally, in which India
takes a larger and more independent part than is generally
recognised.
These considerations will be found to have important
bearings upon the scheme, which has lately been advo-
cated with much force and ingenuity, to establish, by
general law, a fixed ratio of value between the two pre-
cious metals, and suggest some further observations on
the principles involved in the proposal.
16. Indian Coinage. The principles on which equivalent
values must be determined for a voluntary double coinage
may be well exemplified by a reference to our Indian
currency.
The conditions of it as now legally established are
these : (
By the Act XVII. of 1835 of the Indian Government,
gold coins were declared to be no longer a legal tender.
It was thus authoritatively demonetised :
The standard coin is the rupee, weighing, as issued from
the Mint, 1 tola or 180 grains troy of silver, i|ths purs :
this tola being one of the oldest standard weights of the
country, which had in course of time varied, though only
slightly, in the many different states into which India had
been subdivided, but was fixed at this weight on the regu-
lation of the currency. It is thus made exactly equal to
three-eighths (f ths) of an ounce troy. The Mint, however,
charge a seignorage of 2 per cent, and mintage 1 per mille;
so that 183-861 grains troy have to be taken to the Mint
to procure a rupee, and as long as the coinage is not ex-
cessive 102'1 tolas bullion is the equivalent of C.Es. 100.
If there were a redundancy of coin this element of merely
THE DEPRECIATION OF SILVER, ETC. 371
local value would be lost, and the value of the coinage de-
preciated accordingly; as it is, the coin and the weight
of silver required to make the coin are normally equiva-
lents, and the weight of the latter must be taken for any
comparison between the value of gold and silver bullion.
The price of silver, however, is by no means wholly de-
pendent upon the coinage, for, as the quotations of fine
silver show, it is frequently bought as bullion, though the
difference is so slight as not to warrant the inference that
the coin is unduly scaice, but simply that the metal is
otherwise used. Native bankers may prefer to hold their
bullion uncoined, at all events at a rate which will
admit of their getting it coined with only a very small
fractional loss, if ever they should have occasion to send
it to the Mint.
The details of these calculations are given below. 1
During the great pressure for payments for cotton, im-
porters of silver were for a time dependent on the Mint,
for the bankers in the country were not disposed to take
quite so large a supply; and no doubt, in the districts
where coin was superabundant, got quite as much silver
as they could immediately manage very much on their
own terms. As regards gold, also, the prompt sale of it at
its full value was then uncertain, because as it was not
1 NOTE IV.
The value of the rupee may thus be shown :
Grains troy,
Grains troy, standard,
pure. {Iths pure.
Quantity of silver required by the Mint 163-539 183'861
Grains. Grains.
Seignorage 2 per cent. - 3'371 3'677
Mintage, 1 per cent. ... "168 '184
3-539 3-861
Grains troy 165' 180
180 grains troy = 1 tola = 1 Company's rupee weight.
100 tolas pure silver ... - Rs. 109'09
Seignorage, &c. as above ... 2'29
Gives a price of Rs. 106'S or Ks. 106 12as. 9jpie.
Bar silver, however, Is not absolutely pure and 17 B, i.e. 239'240 pure, is
taken as fine. This gives an equivalent of Rs. 106 5as. S-^pie (106'355). /
Practically, a quotation of Rs. 10^4as. for fine silver generally indicates that V
it is taken to the mint for coinage, and Rs. 106 8as. that it is in demand
for other purposes
B B 2
372 MONEY AND VALUE.
coined or made a legal lender, importers were at the mercy
of dealers, who knew perfectly well that an exceptionally
high price of silver and a low price of gold were in cor-
respondence, and that the one and the other were governed
for the time by the high rate of exchange of bills on Eng-
land. As soon as there was a cessation of the extreme
urgency of the demand for cotton, or rather for the means
of paying for it, prices of bullion quickly found their usual
level. All the extreme quotations of this period are alike
referable to an exceptional urgency of demand, and cannot
safely be taken as precedents.
17. The proposed Introduction of Gold into the Currency.
The question of re-introducing gold into the Indian cur-
rency has frequently been discussed, but the attempts
made to carry out the design have always failed ; partly
from the mistaken notion that value could be given by
legislative enactment, and partly from a misapprehension
of the principles which govern the relative values of the
two metals. The result has always been an invitation to
the public to bring gold to the Mint on terms which would
have returned it stamped with a less value than silver
bought at the same cost would have yielded that is to
say, if 1,000 tolas of standard silver had been taken for
coinage the weight less 2'1 per cent, would have been re-
turned in Es. 979 as shown in Note IV. But if this
Ks. 979 had been invested in gold and taken to the Mint
gold stamped as considerably less perhaps as Es. 950
or Es. 955 only would have been returned for it. So also
the government has frequently offered to buy sovereigns
at Es. 10, or at Es. 10 J each, when the coin melted down
and sold in the open market would have been worth
considerably more.
The value of the rupee was apparently assumed as ^$,
and the fact that the average rate of exchange for short
bills on England had been 2s. per rupee was cited as a
proof of it. Whereas so far as the relative values of the two
metals are concerned, it proves quite the reverse ; so long
as the balance of trade is such that bullion is sent from
Europe at all. The comparison is erroneously made
THE DEPRECIATION OF SILVER, ETC. 373
between a rupee in India, and a pound in England or
elsewhere. The rate of exchange necessarily includes all
the costs of the whole operation required (IV. 16) ; and
embraces in addition to the cost in England of the silver
required to make a rupee, transit charges and interest
amounting to 2 or 3 per cent, on that cost. The assumed
^o in England, as shown by a bill of exchange drawn upon
England, recouped the sender for the whole. But if the
first cost of the silver had been jV> or say >f^s a rate of
exchange higher by 2 to 3 per cent, more, or say -$ or ^cf
= 2s. O^d. or 2s. Of d per rupee, would have been required
to yield an adequate return. In fact the silver (183'S61
grains) required to make a rupee is not itself worth 2s. in
England unless the price of 5s. 3 \d. per oz. can be obtained,
and the coin itself would not come out at that rate except
at a price of over 5s. 4%d. per oz. Br. Standard. It will be
seen by Note II. (page 351), that no such price ever was
paid, though notwithstanding this, the rate of exchange
was often very much over 2s. per rupee. The charges
of transit should in fact be omitted as altogether irrele-
vant in fixing the relative values of the two metals at
the same place, or at least charged on both equally.
So also as to the notion of getting up gold at a very cheap
rate from Australia. Although the sovereign is legal
tender in England, the colonists must pay for sending it
there. This at once suggests to a banker, who can sell
sovereigns in India, the possibility of one of those fine
adjustments to which I have referred. But the Australian
wants to pay value in England : not in India, with which
he has no dealings. So, however much India may want
sovereigns, it can only get and retain them if the rate of
exchange on England is such that these charges can be
thrown on the exports of Indian produce which convey the
value to England. Whether it can be best afforded by
these, or by the exports of produce direct from Australia,
is a fine question of passing detail for the professional
banker. But to deduct any estimate of such charges from
the relative value of the sovereign, or so to decrease the
value (i.e. increase the weight) of the equivalent of any
374 MONEY AND VALUE.
gold coin which it is desired to introduce, would be to
counterbalance the only power which can cause the gold to
move at all. Moreover when once sovereigns, or gold, get
to England, all these costs for special use are paid for and
done with : the sovereign in England is the same as the
sovereign in Australia, and the mere difference in the cost
of transit from either place to India is extremely small.
Silver also may come in like manner to India from ports
much nearer than England : from China or Siam, for in-
stance ; but the greater or less charges are all adjusted in
the current transaction, which we know has two sides,
though one only may come under our notice.
If an opportunity should again arise for coining gold
in India, and the State desire that both metals should be
brought voluntarily to the Mint, the equivalents must be
so adjusted that the same declared values of coin shall be
delivered from the Mint for such quantities of either metal
as shall be of the same cost to those who bring them to it.
If this new element is to be introduced, a weight of gold
must be determined which shall correspond with and take
up the existing value of the current rupee. It must not
be too heavy, or no one will bring gold to be minted, nor
must it be too light, for that would be a palpable degra-
dation of the existing standard, entailing an injustice on
the holders of all obligations payable in currency, and as
has just been stated, might lead to the rejection of the
coin, at least at its legal but practically only nominal value.
The government must be content to interpret the facts as
they come before it, or within the range of reasonable
prevision, and not attempt to control them. It is useless
to look back to former equivalents. If the common
measure of value is changed, the remedy is not to be found
by disguising the fact, but by rational action on a clear
recognition of it.
The imposition of arbitrary seignorages and restrictions
on a coinage cannot have any great effect without entailing
the result of localising it, and a currency thus artificially
isolated will always be a doubly unstable standard of
value. Nor must the practical risk be ignored, that, if it
THE DEPRECIATION OF SILVER, ETC. 375
become worth the while of any unscrupulous adventurer
to fabricate a perfect facsimile of the rupee, there is a wide
choice of places which might now be selected for such a
purpose, nor is there any reason to conclude that the
difficulties of introducing money, so exactly simulating
in all respects that which is a legal tender, would be
insuperable.
If the coinage is to maintain that due connection with
the world at large which constitutes the highest utility
and the best security for any currency, nothing can ensure
the concurrent circulation of the two metals, except the
permanence of the conditions affecting them severally, both
within and outside of the country. But if, as I think there
is good reason to believe, certain advantages are to be
gained by the introduction of gold into the Indian currency,
and further, that its value is more securely based than that
of silver (II. 26, 27), there is no reason for an excess of
caution in fixing terms which will induce holders to bring
it to the Mint. If in process of time circumstances ad-
mitted of both receiving full popular recognition and an
equal place in the currency, it might then be feasible to
make gold the sole standard, provided that a sufficient
quantity of it could be procured for this purpose without
unduly raising its relative price. It will be long, however,
before silver can be superseded as legal tender money in
such a country as India, and it will certainly have to be
used in any case for a large subsidiary currency. If, on
the other hand, silver were to decline further after the
equivalent weights had been legally fixed, the gold re-
latively dearer outside than within the circle of Indian
currency would no longer be brought to the Mint, and
would flow out of the country as the conditions of trade
gave occasion for its export : merely leaving the metallic
standard in silver unchanged. Even in this event the
attempt, though it might be stigmatised as " a failure " by
those who were anxious to get gold into the currency at
any cost, would not be likely to have any prejudicial
effects, but, on the contrary, would tend rather to mitigate
the extreme fluctuations of an exceptionally disturbed epoch.
376 MONEY AND VALUE.
18. Expedient of Coining Both Metals Independently.
It is a question worth considering whether gold might not
in some degree be introduced without, at the moment,
fixing its equivalent in silver, for there are undoubtedly
very strong objections to repeated changes of declared
value of legal tender money on the part of government.
As there have been lately in the United States " currency
prices" and "gold prices," with certain obligations and
customs duties payable only in the latter ; so there seems
no reason why a portion of Indian taxation should not be
levied in gold. Part of the large quantity of this metal
in the country might thus be brought into ordinary circula-
tion and be at the disposal of the State. Normally, neither
metal will go to Europe against the stream of exchange ;
still, in the possible event of another panic, a reserve in
this form might be a useful alternative. In uncertain
times it is well to have a choice of resources. A coinage
in correspondence with this would have to be of the old
well-known weight of tola and half- tola pieces issued at
as moderate a seignorage as would cover the cost. As
India is not like England, the centre of a vast general
trade, there is no sound reason in policy why the coinage
should not so far bear its own charges. This would tend
to adjust, not indeed permanently, but for the time being
more definitely, the relative values of the two metals,
and might ultimately afford a good basis for future opera-
tions.
There is no reason why two metals should not cir-
culate independently side by side as inconvertible paper
and metallic money have frequently done. No doubt a
currency appears more symmetrical and complete with
both made interchangeable at a fixed ratio. But as they
are not and cannot be so fixed, the more simply the true
alternative is accepted the better. At present, although
gold circulates largely chiefly in the form of 'small bars or
ingots, it has no acknowledged place whatever in the
currency of India.
19. Present Uncertainties. In the present state of utter
uncertainty as to the future, it is vain to discuss the
THE DEPRECIATION OF SILVER, ETC. 377
question as to what ratio of weight should be determined
upon as the most fitting expression of the relative values
of gold and silver. It is impossible to predict the next
turn of events when both immediate supply and imme-
diate demand are so much under the control of individual
interests and discretion.
For India, under any circumstances, to enter into a
blind competion with the United States for the purchase
of gold would evidently be an error, for an unduly urgent
demand might very easily induce a temporary appreciation
of it and a relative depreciation of silver to an extent
which would greatly aggravate the inconveniences to be
apprehended. The results of the recent changes as regards
India itself are by no means so disturbing as has been
supposed. Local prces are not affected, and the general
adjustment of local revenue to expenditure is not dis-
turbed. The most serious item of difficulty is the charge
of 16,000,000 now required in gold in England. This is
an unquestionable difficulty, and the capital also of some
46 millions of debt incurred in this country is also re-
deemable only in gold. But we are apt to over-estimate
the weight of this loss on an assumed exchange, because
it appears so clearly in account, whereas the enhanced
cost of other requirements is not seen, though it may in
reality entail far more serious expenditure.
Eegarded more generally, the effects of the recent
changes are magnified, and are indeed, more seriously
felt because they partly fall where we have too readily
become accustomed to look for certain stability, though in
fact that stability has often been more apparent than real.
This uniformity in the relative values of the two metals
was only obtained because European trade for a consider-
able period was in such a condition that, speaking gene-
rally, mere transfers of bullion, first one way and then the
other, were sufficient to adjust the casual balances of trade
and rule the course of exchange ; while Asia, where silver
was comparatively dear, steadily took off just about the
surplus which we could conveniently spare.
These conditions of stability no longer exist. The dis-
378 MONEY AND VALUE.
coveries of AJX 184S and subsequently, upset this balance,
though the countervailing causes, which have already been
noticed, served to retard the apparent effect of the changed
conditions thus introduced. There has been unquestion-
ably, on the other side, a great increase in general industrial
wealth, and in the consequent ability to apply larger values
of metallic money to beneficial uses. The special inquiry
as to the depreciation of silver is involved in the broader
question of the future purchasing power of both the
precious metals.
The excess in value of the rate of production over that
which was yielded in those days when the ratio panged
between 15 to 16 silver, to 1 gold, has been at least 25
millions for over 25 years, say at least .600 to 700
millions up to 1876. It is well nigh impossible to say
how much of the quantity thus indicated has been per-
manently absorbed without a decrease in value, or what
changes in relative value as compared with commodities
generally have been caused by this excess ; but it has
assuredly not passed out of existence. The supply is
cumulative from age to age with comparatively slight
diminution by loss, waste, and use in the arts. If the
production of the next quarter of a century be unchecked
it will in all probability yield a quantity which, at the
present estimate of value, will be equal to at least 700
millions in excess of that which would have been afforded
had the rate of supply remained the same as it was during
the first half of the century. This will make together an
aggregate of 1,000 to 1,200 millions from the known
sources of supply in Europe and America. The proportion
of gold to silver in these aggregates has varied, and may
yet vary greatly, and this vast quantity, which will have
to be placed throughout the world, will also inevit-
ably tend to modify the relative demand; for it is
impossible to foresee or to control the choice which will be
exercised when both metals are offered in unprecedented
abundance.
20. Proposal of a general Fixed Ratio. To meet the
apprehended danger of a decline in silver, it has been urged
THE DEPRECIA IYER, ETC.
by a very ardent school of financiers that all nations should
agree to take gold and silver only at a certain fixed ratio
of value, viz., 1 to 15 J. I shall not here enter at length
into the arguments set forth to support this proposed
revolt against laws of value conceived according to the
motives and traditions which have influenced mankind
from time immemorial, but we may well ask why we are
called upon to attempt so strange an innovation. If the
supply of silver present and potential be in excess of the
wants of the world, we shall only disguise the fact for a
comparatively very short time by stimulating an artificial
demand for it. Ultimately the cost of production must
govern its exchange value meaning of course the highest
cost which will have to be paid in order to obtain the
whole quantity required. If this necessary cost really be
below the proposed, or the present, ratio, an artificial
stimulus will merely be a bonus to miners, at the future
expense of the buyers and subsequent holders. Further, as
regards present holders whether states or individuals : if
there really be an excess, the value is already depreciated,
disguise the fact as we may ; and there is no reason why
others should be called upon to undertake this loss, espe-
cially in a way which will tend eventually to aggravate
the eviL There are, as I have shown, great natural miti-
gations to over-rapid depreciation, but these are thrown
away if a demand is created which simulates value but
does not dispose of quantity, and thus neither adjusts the
weight of the supply to the demand, nor tends to pot any
timely check upon excessive production.
Independent* of Asiatic Trajfk * faPrccJoms Jfefefe.
It is urged, however, that if silver be not supported, it
may be utterly rejected in a blind panic by all the nations
of Asia: that gold would then be insufiicient to supply
the great void thus created, and that the consequent appre-
ciation of the sole standard of value would lead to conse-
quences of the most alarming character. But those who
know anything of the immobility of the East will have no
fear whatever on this score. There is not more, but far
. likelihood of a panic from any such cause there than
380 MONEY AND VALUE.
in Europe. Indian bankers have plied their trade long
before the north of Europe had learnt the arts of commerce
save in their rudest forms. There is no considerable village
where a liundl (draft) cannot be obtained on any other
district throughout the country. The instinct of money-
dealing which especially distinguished the Jew and the
Lombard in the Middle Ages carries the Hindoo, in spite
of his own religious prejudices and dread of the " black
water " of the ocean, to every part of Arabia and even to
Eastern Africa, where Mahommedan civilisation has taken
the place of the lower forms of native barbarism. We may
be quite sure that the bankers of Hindostan know all that
we know about the production of the precious metals in
the mines of Europe and America, and probably a good
deal more which we do not know about Asiatic sources of
supply. They may not know in terms the economic law
of " rent " or of " supply and demand," but they do know
quite well that when production pays largely it is likely
to increase, and to fall off when it no longer gives a profit.
Long experience makes them distrust the permanence of
sudden and violent changes. They will continue to buy
gold or silver bullion according to their own judgment,
without the slightest reference to our currency laws,
further than they may effect the actual supply or demand
at the moment. Of any such changes they will certainly
take the utmost advantage which the market affords : they
are shrewd and for the most part very cool bargain drivers.
China also has the tradition of ages for the free alternative
use of the precious metals, and the very fact that the
country has not any formal currency system makes it more
utterly out of the question to influence the relative value
of gold and silver in any other way than by actual pur-
chase or sale. Even if all Europe were to adopt the fixed
ratio of 1 to 15 J, the only consequence would probably be
that Asia would take the gold and leave the silver to the
" new " world.
But that they should reject silver altogether is equally
beyond the limits of probability. They will buy it on
their own estimate of its value, though not on any ratio
THE DEPRECIATION OF SILVER, ETC. S&l
fixed for them, and quote wise aphorisms on the folly of
haste while they take the utmost advantage of any undue
urgency of sellers. And as regards the currency, strictly
speaking, no fluctuation in metallic money can cause a
change in prices in any way equal to those with which all
classes are familiar so far as regards their own personal
experiences. Whether there be a general rise in prices is
indeed a very great question and always one which it will
require very wide and careful investigation to answer, the
more so because it is a remote cause usually overlooked
amidst the more special and urgent causes which lead to a
change in the price of any one commodity. Further, as
regards the relative depreciation of silver, gold then seems
to be rising even more clearly than anything else ; and,
though holders of silver may wish that they had had gold,
its apparent dearness at the time will check Iheir demand
for it. To the general apprehension it will not be silver
that has fallen, but gold, and prices generally that have
risen ; and at the worst such a change is not of a kind
likely to excite general alarm in the way suggested. An
ignorant panic would be far more likely to excite popular
indignation against the dealers in food and other com-
modities.
22. Movements of Bullion in India. The statistical
abstracts relating to British India, annually submitted to
Parliament, give some very suggestive indications of the
movements of bullion. Thus it appears that from A.D.
1867 to 1875, 113 millions of treasure were imported
against an export of 17 millions only, leaving a balance of
96 millions retained in British India. These returns
may not be altogether complete, but there seems no reason
to doubt that they are good proof so far as they go, and
rather under than over-state the extent of the traffic. Now
the total export from European sources (as given in Note
II.) was only 77 millions, and a large portion of this
certainly went to China and the Malacca Straits. The
Indian detailed returns are not quite contemporaneous
with those made here, but are sufficiently so for all practical
purposes in this context. They show that out of a total
382 MONEY AND VALUE.
of 76 millions worth of silver, received during A.D. 1866
to 1875, 29 millions were from England and 5 millions
from other parts of Europe, iri all 34 millions. At least
25 millions from China and over 4 millions from Ceylon
(probably for the most part transhipments), leaving 12 to
13 millions from miscellaneous sources. While of 39
millions of gold, 16 millions were from China, 11 f
millions from Australia, 8J millions only from Europe,
and about 3 millions from other sources. It is in this
last item of miscellaneous trade, carried on by numerous
small craft from Africa, the Persian Gulf, the Eed Sea, &c.,
that omissions are very probably made, which in the
aggregate would come to a considerable amount.
The coinage of silver for these years is 51 millions,
being about two-thirds of the whole supply, but 50 per
cent, more than the whole receipts from Europe. It may
be added that there is a note-circulation of about 10
and 12 millions. This coinage, however, is probably melted
down in an unusually large degree. The seignorage
does not protect it in this respect, for though 2 per cent,
is a heavy charge on a large bullion operation, it is a very
small one for a trustworthy assay of 2 or 3 ounces of silver ;
and that is what it practically comes to with the many
millions of the poorer classes, who in good times like to
have their savings in the form of ornaments, and have them
made directly from the standard coin. These returns
afford also a very definite proof of the extent of the large
and independent traffic in gold entirely unsupported by
any demand for the legal currency of the country. If the
question of its coinage should be again taken up in India,
there is no doubt that large supplies will be forthcoming
providing a due value is assigned to it. But it is needless
now to enter further into the details of this difficult and
very technical question.
23. The Eatios of Value will best be worked out by Free
Competition. The more fully the "subject is investigated
the stronger a.ppear to be the reasons for trusting to the
operation of natural laws rather than to expedients however
ingeniously contrived, or however well and boldly worked
THE DEPRECIATION OF SILVER. ETC. 383
out. I need not repeat the arguments set forth in the fore-
going treatise, by which I have endeavoured to show that
a currency is soundly based only when it rests ultimately
upon the widest average which the world can afford, worked
out by the untrammelled interaction of supply and demand.
I have not denied that less perfect currencies can be got
to work, and believe that doctrines exaggerated in this
respect have given colour to many of the fallacies which
still prevail on the subject. Still, I may repeat, the
question in the present day is not what forms of currency
can be got to work in some sort of way, but what will afford
the best attainable basis for the great system of industrial
and commercial organisation which is being developed
around us. This is of far more consequence than any
casual loss which may arise from the depreciation of one
of the precious metals. No one will deny that a demand
artificially stimulated will support the relative value of the
weaker of these metals for a considerable period. But
just in the degree that production was so stimulated would
be the ultimate fall when supply at the increased rate had
to be disposed of finally. The mere prospective falling off
of demand will not stop supply, on the contrary will tend
rather to increase it ; that will be brought about only by
such a general rise in prices as shall render mining less
profitable, and bring the test of the cost of production to
bear on every mine with increasing severity. Even if the
demand for coinage could be regulated at a fixed ratio of
relative value, that would only afford an undue because
necessarily only a temporary stimulus to the production of
that metal which was the cheaper with reference to that
fixed ratio. Even if every coin issued contained a fixed
proportion of gold and of silver there would yet be a limit
to the demand for each severally. If gold and silver are
independently variable it is clear they will be variable also
with reference to any combination of gold and silver, and
the fixed price of this " electrum " would be just as cer-
tainly resolved into a mere expression of relative weights.
The metal which could be produced most largely at a profit
upon its proportional fixed value would be in excess, the
384 MONEY AND VALUE.
other relatively scarce. If one, say gold, were to become
relatively scarce in this manner, no power on earth could
prevent its acquiring a premium ; demand creates demand
and induces a confidence in stability, so that this premium
would tend to augment. The less costly metal, say 15 J
parts silver, would seek for its counterpart in vain, but
who could prevent its production, if 16 or 17 or more
parts could be produced at a profit as compared with the
1 part of gold. It would willingly be sold at a discount.
The artificial nature of the arbitrated ratio would thus
become glaringly apparent, and, as regards any question
of relative value, utterly worthless and ineffective in the
long run. Keverse the supposition if you will, and write
silver for gold, and gold for silver, the argument holds
equally good. The expedient ignores the true conditions
of the problem and must end in confusion, unless indeed
the course of events be such as to render it unnecessary
and useless.
The two metals circulating side by side independently,
as they have done from time immemorial, will each find its
own true level far better and more evenly without any such
interference. Nations or governments who have to deal
practically with the question must exercise their own timely
discretion as to any acts which may affect the supply or
demand of either, bearing in mind that though they may
very easily do much to perturb the present, they can do
little or nothing to control the future course of monetary
adjustments.
24 Relative Cost of Production must ultimately govern
the Relative Value of Gold and Silver. The fundamental
fallacy which lies at the bottom of all arbitrary proposals
to regulate the value of the precious metals is, that
because their uses as money are special and peculiar, there-
fore they are not subject to the same laws of value as those
which govern all other things. Captivating as the error
has been to many very acute minds, it is hardly more than
a mere verbal mystification. Of course money measured
in money cannot give any intelligible evidence of its own
worth, or afford any indication of a change in its own
THE DEPRECIATION OF SILVER, ETC. 385
value. But as all things are measured by money, so
money hi its turn is measured by that which it will buy ;
and ultimately, the necessary relative cost of production
governs all supply according to conditions which Nature
imposes upon all mankind : and further, all traffic in its
widest sense comes at last to an interchange of supply,
and thus laws of physical necessity underlie the laws
"which control all relative values.
This is why all who study the higher problems of value
feel that well-devised and trustworthy statistics of general
prices, which have hitherto been rather a matter of intelli-
gent curiosity, may become a matter of serious importance :
for by their aid only can we test the stability of money
itself, which is not inherently more than a common
measure of all other relative values.
Because the value of the precious metals is highly genera-
lised and independent of the transient accidents which
affect most other commodities, it seems to be inferred that
value is in some way independently inherent in them.
But this is in nowise the case. It is surely governed by the
aggregate influence of countless agencies, ever acting both
in the present and upon the accumulated stores of ages.
Hence it is that the effect of these agencies, though
gradually produced and often at the moment obscure, is
owidontly worked out with such irresistible power. The
total quantity yielded must be adapted to the total
effectual wants of the world ; and an addition to any pre-
viously existing quantity can only be taken into the
common fund, either by an extension of the uses found
for it ; or by such a reduction in the units of value into
which the whole may be divided, as shall leave the value
of the aggregate unchanged ; that is, by a decrease of the
purchasing power of every such unit and a corresponding
rise in all prices. But when all other things become dearer
in relation to gold and silver, it becomes less and less worth
while to produce any given quantity of them. And thus
it is that the production of every mine severally, and
therefore of each metal separately, must be ultimately
c c
386 MONEY AND VALUE.
governed by what the world will give in commodities
which gold or silver can buy.
Thus, though gold measured in silver, or silver measured
in gold, give but a barren indication of value ; the induce-
ment to produce either is effectually regulated by the
relative returns as measured in those things which
directly minister to the wants and' pleasures of mankind
that can ultimately be obtained for the labour devoted to
this rather than to any other kind of employment.
Assuming as a probable fact that the production of gold
and silver will be in excess of the wants fully admitting
them to be increasing wants of the world at large, it
follows that the more directly a decline in value arising
from such excess is brought to bear upon production, the
better for all the vast interests concerned in the stability
of money values. For, I repeat, this excess will be cumu-
lative. The question must not be argued as though the
large supply of recent years had been so disposed of and
consumed as to be out of the account altogether. Delay
in the application of the only erficient remedy will lead
only to more violent fluctuations hereafter, and render the
ultimate adjustments of values and prices more difficult.
In other words ; leave the price of gold measured in silver,
or silver measured in gold to adjust itself relatively, as all
prices will and must adjust themselves to the future
relative value of metallic money [II. s. 11 and 23] : and
though the apprehended increase in quantity can only be
met by a decrease in value, still this decrease, affecting as
it does so vast an aggregate, will itself create the best
outlet for this increase in quantity.
Until we can see that the production of both metals is
brought immediately under the influence of the law of
supply and demand : in other words until it is held clearly
in check by the difficulty of getting adequate returns for
the poorer class of mines indifferently, we cannot but feel
uncertainty as to their fitness as standards of value for
any lengthened periods ; though there seems no reason
whatever to doubt that both of them, as effectually as
THE DEPRECIATION OF SILVER, ETC. 387
heretofore, will serve as common measures of value for the
current interchanges of commerce and industry.
The present generation may have more than its share
of doubt and difficulty to undergo, but there is no legacy
which it can leave to posterity better than a currency
soundly based on that stability of value which a world-
wide average, freely worked out, will give to the precious
metals.
a* # The foregoing remarks were written in the summer
of last year, and now, in the beginning of 1878, I have
little to add to them. The extent to which the fall in the
price of silver has led to its transmission to the "East has
far exceeded general expectations. Last year's returns
have been added to Note III. The change in international
values, or more strictly speaking, in international valua-
tions, by checking exports from Europe to Asia, and
stimulating imports to Europe from Asia, has largely
increased the differences in value which are normally
payable in the precious metals. The tendency of general
and more remotely operating causes will be gradually to
work down these differences ; and this should be thejnore
carefully noticed, as it is likely to be forgotten amidst the
more conspicuous and pressing influences of the moment.
Meantime the utmost uncertainty continues to exist on
all sides as regards the future available supply and demand.
The now well known " Bland Bill " for remonetising silver
in the United States currency seems likely to become law.
The ratio of value of gold to silver, to be fixed under it,
has been the subject of some discussion. A dollar of
425 grs. troy, which was proposed, gives a ratio of nearly
16 J (16473) to 1. The trade dollar of 420 grs. (which has
been coined in San Francisco specially to compete with
the Mexican dollar in China and the Eastern Seas), gives
rather more than 16J (16-279) to 1. But the original
silver dollar, or more strictly speaking the dollar of
A.D. 1837, seems likely to be adopted, which is less than
16 (15-988) to 1. ( 3, page 348.) This would be about
388 MONEY AND VALUE.
on a par with the prices which were paid in the first half
of A.D; 1874, and about 8 per cent, higher than the average
quotations during the past year.
It is surely a backward step in monetary policy for the
United States, after having attained the advantages of a
standard based on gold, to commit themselves to all the
uncertainties of a double standard, with the probability
that they will drift into a depreciated and depreciating
standard of silver. The step, however, does not seem to
have been taken so much with the view of relieving
debtors at the expense of creditors (though that feeling, no
doubt, has had something to do with the adoption of the
lighter rather than the heavier dollar) as from the notion
that the country could be very greatly enriched by using
the vast stores of silver which the Pacific States afford to
increase the "money" in circulation. It is not to be
wondered at that the farmers in the West should fail to
perceive that such money must decrease in value as it
increases in quantity. There are too many examples of
belief in the seductive delusion that such money is real
wealth. Moreover, rising prices are always popular with
certain classes who are well able to make themselves
heard. The Western farmer suffers, in fact, from the pro-
tective system. The protected interests drive hard bargains,
with him, and leave him very bare of money. It is a
great stroke of craft to leave him in the belief that more
" money " will put more dollars into his pocket, which is
indeed true to the very letter.
It must be clearly recognised that there are two distinct
questions before us, viz., the effects of the aggregate in-
crease of "both gold and silver, and the probable ratio of
value which one metal will bear to the other. The partial
adoption of silver in the United States will both tend to
stimulate production and to increase the native demand
for it ; but so much the more gold will be available for
export, which will tend to the depreciation of that metal
also in Europe. When the quotations of silver vary, it
will be difficult to determine whether it is owing to a rise
THE DEPRECIATION OF SILVER, ETC. 389
in the one metal or a fall in the other, or to a fall in both
in unequal proportions. The tendency, however, of the
double change will be to cause their values to converge ;
that is, to raise at all events the nominal value of silver ;
and this is no doubt for the advantage of the mining
interest for the time being. On the other hand, Germany
has still to dispose of a considerable balance of the silver
rejected from its currency ; and it appears further that the
Bank of France, out of a total of 81,000,000 of bullion,
holds 34 J millions, or over 42 per cent, in silver.
On the assumption, however, that as Icng as the United
States Government is a large buyer, the price will be
somewhat enhanced, the effect will be to reverse pro
tanto the recent conditions of our trade with Asia. The
stimulus to production and the discouragement to importers
there will both be diminished ; so far the tendency will be
to reduce the balance which it can give in return for
bullion. A pressure, though probably not of any very
great severity, will thus fall upon those industries which
have lately been favoured. The hardships entailed by
such changes are real and much to be regretted; but the
only true remedy is to submit ourselves to conditions
which we cannot possibly control. The energy which
shows itself in the work of production is of no avail
unless it is guided by the intelligence which can adapt
its methods and its results to the changing circumstances
with which we have actually to deal. It is this practical
intelligence which must have free scope, especially in such
times of difficulty and uncertainty as the present.
It is strange how again and again the fallacies of the
old mercantile system crop up. Very lately, in addressing
one of our learned societies, the speaker went out of his
way to remark, " Will America, in selling its cotton, sugar,
and tobacco, to the extent of 20,000,000 or 30,000,000,
take an equal or greater amount of our manufactured
goods in return ? " The Board of Trade returns show even
larger figures, giving an export of 71,000,000 against
imports from this country of 16,000,000 only. Are we
to assume that this balance of 55,000,000 is not paid for
390 MONEY AND VALUE.
by the products of British industry. It is true we hold
a large amount of the United States debt, and to some
extent their export goes to pay the interest due on our
capital advanced. But for the rest, are we generally
bankrupt, and do not pay our commercial debts ? Or has
the heathen Chinee so far imbued our giant offspring with
sentiments of filial piety that he makes a gratuitous offer
of the amount to the old country ? The absurdity which
is jdrawn out in the replies was latent in the question
itself. The fact is, that we do and must pay in the pro-
ducts of British industry sent to all quarters of the globe
in exchange, not the less real because it is indirect, for
other products which are consumed in the United States.
If our direct imports were reduced, all those interested in
the exports which served to pay for these products would
suffer, or at least be likely to suffer just as much as if the
export were made direct to the States. Even if our direct
eorport to the States were increased, one effect would be
that the means immediately available for the support of
these various trades would be curtailed. Tor instance,
coffee sent from the Brazils to New York is paid for by
bills drawn on London. These are bought in the Brazils
by those who have sold British manufactures there ; but
New York has to send value to London to pay these bills
drawn for its account, and can now do so out of its large
supplies sent to England. If these last were to cease, the
means of paying for manufactures sent to the Brazils
would cease also ; nor can we assume that they could pay
us at once in coffee, for the presumption is that we have
a sufficient supply of that article already. The compen-
sations for all such changes as come about in the natural
course of events are constantly found by the activity of
commerce, if only artificial barriers are not set in the way
of the new adaptations required ; but we must not hark
back on the old fallacy that a trade with any country is
insecure merely because from our ignorance we cannot
trace exactly how it is balanced.
How widely extended and efficacious these indirect
channels may be is indeed singularly well illustrated by
THE DEPRECIATION OF SILVER, ETC. 391
our trade with the United States. Locally, indeed, they
have adopted a policy of protection far more to their own
national loss than to ours, but the great external traffic in
which they are concerned cannot be restricted ; and over
and above the great excess of value sent to us in products,
a large amount of their treasure is further sent to us for
such indirect transactions as have just been described.
I refer to this subject more especially at this juncture
because the large supply of treasure which is being pro-
duced, and must be distributed throughout the world, will
tend very greatly to stimulate indirect traffic of this nature.
The owners will ever be seeking an outlet in any and
every market which can afford them returns for it in any
way. Money in this substantive form is thrown upon the
world, and is in the main only adapted for those primary
uses which were set forth in Chapter I. of this book. It
will be a very searching pioneer to open up new trades
under new conditions. It both stimulates, and is capable
of affording support to new enterprises in many and
various directions ; and though the real value of mere
metallic wealth is altogether misconceived and exaggerated
in popular estimation, it would not the less be an error to
neglect this advantage which may afford much compen-
sation for many of the losses and inconveniences which
the disturbance of the common measure of value will
entail. Whether we will or not, the old courses of
traffic will be peculiarly liable to be deranged and in some
cases superseded altogether. The gaps thus made are too
apt to engross all our attention, to the exclusion of new
and growing interests which have an equal claim upon
our regard.
Those who intelligently advocate the full freedom of
trade do so not from any love of change for the sake of
change, but from the well-assured conviction that our
prosperity depends upon the continuous adaptation of our
labour to the ever- varying conditions of society (III. 6).
Protection, however disguised, claims a vested interest
in a perpetuity existing only in a moribund imagination
which can dream only of the past, but is unable to realise
392 MONEY AND VALUE.
either the living present or the promise of the future.
The accession of " metallic wealth," if appropriately used
as a medium and agent of exchange in opening up new
channels for industry, may do something to promote the
sum of general prosperity ; though if regarded as in itself
constituting wealth, its increase will be found only a bitter
mockery and a delusion.
THE END.
LONDON : R. CLAY, SONS, AND TAYLOR, PRINTERS, BREAD STREET