How a Commodity Becomes Money

Section 3: The Accession of Value a Commodity receives by being Vested with the Character of Money

Money is currency, not because of the authority of the government, but because it is a commodity bearing a peculiar and intrinsic value.

But its preference, as an object of exchange, to all other commodities of equivalent value, is owing to its characteristic properties as money; and to the peculiar advantage it derives from its employment in that character; namely, the advantage of being in universal use and request.

The whole population, from the lowest degree of poverty to the highest of wealth, must effect exchanges, must buy the objects of want; must be consumers of money; or, in other words, must obtain possession of the commodity, that acts as the medium of exchange, the commodity generally admitted to be best suited, and most frequently employed for that pur- pose.

A man that has any other commodity, jewels, for instance, to offer in exchange for the necessaries or luxuries he may have occasion for, cannot get those necessaries or luxuries by the process of exchange, until he has found a consumer for his jewels; nor can he even then be sure, that such a consumer will be able to give him, in return, the very identical article he may want= whereas, a man, with money in his pocket, is quite certain, that it will be acceptable to the person, of whom he would buy any thing; because that person will, in turn, be himself obliged to become a purchaser in like manner. 240

With the commodity, money, he can obtain all he wants by a single act of exchange only, called a purchase; whereas, with all others two acts at least are necessary; a sale and a purchase. This is the sum total of its advantages in the character of money= but it must be obvious to every body, that the preference, thus shown it as money, is a consequence of its actual use as such.

Hence it naturally follows, that these metals being, by reason of their employment as money, raised to such a price, as precludes their so general use in the form of plate and jewellery, it is in consequence found less convenient to use them in that form. The luxury costs more than it is worth. Thus, massive gold plate has gone completely out of fashion, particularly in those countries, where the activity of commerce, and the rapid progress of wealth, make gold in great demand for the pur- poses of money. The richest individuals content themselves with gilt plate, that is to say, plate covered with a very thin coat of gold; solid gold is used only in smaller articles of manufacture, and those in which the value of the workman- ship exceeds that of the metal. In England, plate is made very light, and people of affluence often content themselves with silver-plated goods. The ostentation of displaying a large ser- vice of that metal costs the interest of a considerable capital. The increase of the value of metals is, generally speaking, attended with some disadvantages; inasmuch as it places many articles of comfort and convenience, silver dishes, spoons, &c., beyond the reach of most private families; but there is no disadvantage in such increased value of the metal in its character of money; on the contrary, there is a greater conve- nience in the transfer of a less bulky commodity, on every change of residence, and every act of exchange.

The selection of any commodity, to act as money in but one part of the world, increases its value everywhere else. There is no doubt, that, if silver should cease to be current as money in Asia, the value of that metal in Europe would be affected, and more of it would be given in exchange for all other com- I must here observe, that the adoption of any specific com- modity to serve as money, considerably augments its intrin- sic value, or value as an article of commerce. A new use be- ing discovered for the commodity, it unavoidably becomes more in request; the employment of a great part, the half or

1,200,000,000 lbs. weight of sugar. Why? Because the busi- ness of circulating all the values of England required no larger value. No government has the power of increasing the total national money otherwise than nominally. The increased quan- tity of the whole reduces the value of every part; and vice versa. 245

modities; for one use of silver in Europe is, the possibility of exporting it to Asia. The employment of the precious metals as money by no means renders their value stationary; they remain subject to local as well as temporary fluctuations of value, like every other ob- ject of commerce. In China, half an ounce of silver will pur- chase as many objects of use or pleasure as an ounce in France; and an ounce of silver in France will generally go much far- ther in the purchase of commodities, than it will in America. Silver is more valuable in China than in France, and in France than in America.

Since the national money, whatever be its material, must have a peculiar and inherent value, originating in its employment in that character, it forms an item of national wealth, in the same manner as sugar, indigo, wheat, and all the other com- modities that the nation may happen to possess. 246 It fluctu- ates in value like other commodities; and like them, too, is consumed, though less rapidly than most of them. Where- fore, it would be wrong to subscribe to the opinion of Garnier, 247 who lays it down as a maxim, that, “so long as silver remains in the shape of money, it is not an item of ac- tual wealth in the strict sense of the word; for it does not directly and immediately satisfy a want or procure an enjoy- ment.” There are abundance of values incapable of satisfying a want, or procuring an enjoyment, in their present existing shape. A merchant may have his warehouse full of indigo, which is of no use in its actual state, either as food or as cloth- ing; yet it is nevertheless an item of wealth, and one that can be converted, at will, into another value fit for immediate use. Silver, in the shape of crown pieces, is, therefore, equally an article of wealth with indigo in chests. Besides, is not the utility of money an object of desire in civilized society? Thus money, or specie, as some people call it, is a commod- ity, whose value is determined by the same general laws, as that of all other commodities; that is to say, rises and falls in proportion to the relative demand and supply. And so intense is that demand, as to have sometimes been sufficient to make paper, employed as money, equal in value to gold of the same denomination; of which the money of Great Britain is a present example.

It must not be imagined, that the paper money of that country derives its value from the promise of payment in specie, which it purports to convey. That promise has been held out ever since the suspension of cash payments by the bank in 1797, without any attempt at performance, which many people con- sider impossible. 243 Gold is only procurable piecemeal, and by payment of an agio or percentage; in other words, by giv- ing a larger amount in paper for a smaller amount in gold. Yet the paper, though depreciated, is invested with value far ex- ceeding that of its flimsy material. Whence, then, is that value derived? From the urgent want, in a very advanced stage of society and of industry, of some agent oi medium of exchange. England, in its actual state, requires, for the effectuation of its sales and purchases, an agent or medium equal in value, say to 1,284,000 lbs. weight of gold; or, what is the same thing, to 1,200,000,000 lbs. weight of sugar; or, what is still the same thing, to £60,000,000 sterling of paper, taking the Bank of England paper at 30 millions, and the paper of the country banks at as much more. 244 This is the reason, why the 60 millions of paper, though destitute of intrinsic value, are, by the mere want of a medium of exchange, made equal in value to 1,284,000 lbs. weight of gold, or 1,200,000,000 lbs. weight of sugar.

Indeed, the same writer elsewhere admits that, “specie in the coffers of an individual is real wealth, an integral part of his substance, which he may immediately devote to his personal enjoyment; although, in the eye of political economy, this same coin is a mere instrument of exchange, essentially differing from the wealth it helps to circulate.” 248 I hope what I have said is quite sufficient to show the complete analogy of specie to all other items of wealth. Whatever is wealth to an indi- vidual, is wealth to the nation, which is but an aggregate of many individuals; and is wealth also in the eye of political economy, which must not be misled by the notion of imagi- nary value, or regard as value any thing, but what, all the members of the community, individually, as well as jointly, treat as value, not nominal, but actual. And this is one proof more, that there are not two kinds of truth in this, more than in any other science. What is true in relation to an individual, is true in relation to the government, and to the community. Truth is uniform; in the application only can there be any variety.

As a proof that this paper has a peculiar and inherent value, when its credit was the same as at present, and its volume or nominal amount was enlarged, its value fell in proportion to the enlargement, just like that of any other commodity. And, as all other commodities rose in price, in proportion to the depreciation of the paper, its total value never exceeded the same amount of 1,284,000 lbs. weight of gold, or,