On the Origins of Money Economic Journal translated by dami by dami fx I. Introduction There is a phenomenon which has from of old and in a peculiar degree attracted the attention of social philosophers and practical economists, the fact of certain commodities (these being in advanced civilizations coined pieces of gold and silver, together subsequently with documents representing those coins) becoming universally acceptable media of exchange. It is obvious even to the most ordinary intelligence, that a commodity should be given up by its owner in exchange for another more useful to him. But that every economic unit in a nation should be ready to exchange his goods for little metal disks apparently useless as such, or for documents representing the latter, is a procedure so opposed to the ordinary course of things, that we cannot well wonder if even a distinguished thinker like Savigny finds it downright 'mysterious.' It must not be supposed that the form of coin, or document, employed as current-money, constitutes the enigma in this phenomenon. We may look away from these forms and go back to earlier stages of economic development, or indeed to what still obtains in countries here and there, where we find the precious metals in a uncoined state serving as the medium of exchange, and even certain other commodities, cattle, skins, cubes of tea, slabs of salt, cowrie-shells, etc.; still we are confronted by this phenomenon, still we have to explain why it is that the economic man is ready to accept a certain kind of commodity, even if he does not need it, or if his need of it is already supplied, in exchange for all the goods he has brought to market, while it is none the less what he needs that he consults in the first instance, with respect to the goods he intends to acquire in the course of his transactions. And hence there runs, from the first essays of reflective contemplation of a social phenomena down to our own times, an uninterrupted chain of disquisitions upon the nature and specific qualities of money in its relation to all that constitutes traffic. Philosophers, jurists, and historians, as well as economists, and even naturalists and mathematicians, have dealt with this notable problem, and there is no civilized people that has not furnished its quota to the abundant literature thereon. What is the nature of those little disks or documents, which in themselves seem to serve no useful purpose, and which nevertheless, in contradiction to the rest of experience, pass from one hand to another in exchange for the most useful commodities, nay, for which every one is so eagerly bent on surrendering his wares? Is money an organic member in the world of commodities, or is it an economic anomaly? Are we to refer its commercial currency and its value in trade to the same causes conditioning those of other goods, or are they the distinct product of convention and authority? II. -- Attempts at Solution Hitherto Thus far it can hardly be claimed for the results of investigation into the problem above stated, that they are commensurate either with the great development in historic research generally, or with the outlay of time and intellect expended in efforts at solution. The enigmatic phenomenon of money is even at this day without an explanation that satisfies; nor is there yet agreement on the most fundamental questions of its nature and functions. Even at this day we have no satisfactory theory of money. The idea which lay first to hand for an explanation of the specific function of money as a universal current medium of exchange, was to refer it to a general convention, or a legal dispensation. The problem, which science has here to solve, consists in giving an explanation of a general, homogeneous course of action pursued by human beings when engaged in traffic, which, taken concretely, makes unquestionably for the common interest, and yet which seems to conflict with the nearest and immediate interests of contracting individuals. Under such circumstances what could lie more contiguous than the notion of referring the foregoing procedure to causes lying outside the sphere of individual considerations? To assume that certain commodities, the precious metals in particular, had been exalted into the medium of exchange by general convention or law, in the interest of commonweal, solved the difficulty, and solved it apparently the more easily and naturally inasmuch as the shape of the coins seemed to be a token of state regulation. Such in fact is the opinion of Plato, Aristotle, and the Roman jurists, closely followed by the mediaeval writers. Even the more modern developments in the theory of money have not in substance got beyond this standpoint.(1*) Tested more closely, the assumption underlying this theory gave room to grave doubts. An event of such high and universal significance and of notoriety so inevitable, as the establishment by law or convention of a universal medium of exchange, would certainly have been retained in the memory of man, the more certainly inasmuch as it would have had to be performed in a great number of places. Yet no historical monument gives us trustworthy tidings of any transactions either conferring distinct recognition on media of exchange already in use, or referring to their adoption by peoples of comparatively recent culture, much less testifying to an initiation of the earliest ages of economic civilization in the use of money. And in fact the majority of theorists on this subject do not stop at the explanation of money as stated above. The peculiar adaptability of the precious metals for purposes of currency and coining was noticed by Aristotle, Xenophon, and Pliny, and to a far greater extent by John Law, Adam Smith and his disciples, who all seek a further explanation of the choice made of them as media of exchange, in their special qualifications. Nevertheless it is clear that the choice of the precious metals by law and convention, even if made in consequence of their peculiar adaptability for monetary purposes, presupposes the pragmatic origin of money, and selection of those metals, and that presupposition is unhistorical. Nor do even the theorists above mentioned honestly face the problem that is to be solved, to wit, the explaining how it has come to pass that certain commodities (the precious metals at certain stages of culture) should be promoted amongst the mass of all other commodities, and accepted as the generally acknowledged media of exchange. It is a question concerning not only the origin but also the nature of money and its position in relation to all other commodities. III. The Problem of the Genesis of a Medium of Exchange. In primitive traffic the economic man is awaking but very gradually to an understanding of the economic advantages to be gained by exploitation of existing opportunities of exchange. His aims are directed first and foremost, in accordance with the simplicity of all primitive culture, only at what lies first to hand. And only in that proportion does the value in use of the commodities he seeks to acquire, come into account in his bargaining. Under such conditions each man is intent to get by way of exchange just such goods as he directly needs, and to reject those of which he has no need at all, or with which he is already sufficiently provided. It is clear then, that in those circumstances the number of bargains actually concluded must lie within very narrow limits. Consider how seldom it is the case, that a commodity owned by somebody is of less value in use than another commodity owned by somebody else! And for the latter just the opposite relation is the case. But how much more seldom does it happen that these two bodies meet! Think, indeed, of the peculiar difficulties obstructing the immediate barter of goods in those cases, where supply and demand do not quantitatively coincide; where, e.g., an indivisible commodity is to be exchanged for a variety of goods in the possession of different person, or indeed for such commodities as are only in demand at different times and can be supplied only by different persons! Even in the relatively simple and so often recurring case, where an economic unit, A, requires a commodity possessed by B, and B requires one possessed by C, while C wants one that is owned by A -- even here, under a rule of mere barter, the exchange of the goods in question would as a rule be of necessity left undone. These difficulties would have proved absolutely insurmountable obstacles to the progress of traffic, and at the same time to the production of goods not commanding a regular sale, had there not lain a remedy in the very nature of things, to wit, the different degrees of saleableness (Absatzfahigkeit) of commodities. The difference existing in this respect between articles of commerce is of the highest degree of significance for the theory of money, and of the market in general. And the failure to turn it adequately to account in explaining the phenomena of trade, constitutes not only as such a lamentable breach in our science, but also one of the essential causes of the backward state of monetary theory. The theory of money necessarily presupposes a theory of the saleableness of goods. If we grasp this, we shall be able to understand how the almost unlimited saleableness of money is only a special case, -- presenting only a difference of degree -- of a generic phenomenon of economic life -- namely, the difference in the saleableness of commodities in general. IV. Commodities as More or Less Saleable. It is an error in economics, as prevalent as it is patent, that all commodities, at a definite point of time and in a given market, may be assumed to stand to each other in a definite relation of exchange, in other words, may be mutually exchanged in definite quantities at will. It is not true that in any given market 10 cwt. of one article = 2 cwt. of another = 3 lbs. of a third article, and so on. The most cursory observation of market phenomena teaches us that it does not lie within our power, when we have bought an article for a certain price, to sell it again forthwith at the same price. If we but try to dispose of an article of clothing, a book, or a work of art, which we have just purchased, in the same market, even though it be all once, before the same juncture of conditions has altered, we shall easily convince ourselves of the fallaciousness of such an assumption. The price at which any one can at pleasure buy a commodity at a given market and a given point of time, and the price at which he can dispose of the same at pleasure, are two essentially different magnitudes. This holds good of wholesale as well as retail prices. Even such marketable goods as corn, cotton, pig-iron, cannot be voluntarily disposed of for the price at which we have purchased them. Commerce and speculation would be the simplest things in the world,if the theory of the 'objective equivalent in goods' were correct, if it were actually true, that in a given market and at a given moment commodities could be mutually converted at will in definite quantitative relations -- could, in short, at a certain price be as easily disposed of as acquired. At any rate there is no such thing as a general saleableness of wares in this sense. The truth is, that even in the best organized markets, while we may be able to purchase when and what we like at a definite price, viz.: the purchasing price, we can only dispose of it again when and as we like at a loss, viz.: at the selling price.(2*) The loss experienced by any one who is compelled to dispose of an article at a definite moment, as compared with the current purchasing prices, is a highly variable quantity, as a glance at trade and at markets of specific commodities will show. If corn or cotton is to be disposed of at an organised market, the seller will be in a position to do so in practically any quantity, at any time he pleases, at the current price, or at most with a loss of only a few pence on the total sum. If it be a question of disposing, in large quantities, of cloth or silk-stuffs at will, the seller will regularly have to content himself with a considerable percentage of diminution in the price. Far worse is the case of one who at a certain point of time has to get rid of astronomical instruments, anatomical preparations, Sanskrit writings, and such hardly marketable articles! If we call any goods or wares more or less saleable, according to the greater or less facility with which they can be disposed of at a market at any convenient time at current purchasing prices, or with less or more diminution of the same, we can see by what has been said, that an obvious difference exists in this connection between commodities. Nevertheless, and in spite of its great practical significance, it cannot be said that this phenomenon has been much taken into account in economic science. The reason of this is in part the circumstance, that investigation into the phenomena of price has been directed almost exclusively to the quantities of the commodities exchanged, and not as well to the greater or less facility with which wares may be disposed of at normal prices. In part also the reason is the thorough-going abstract method by which the saleableness of goods has been treated, without due regard to all the circumstances of the case. The man who goes to market with his wares intends as a rule to dispose of them, by no means at any price whatever, but at such as corresponds to the general economic situation. if we are going to inquire into the different degrees of saleableness in goods so as to show its bearing upon practical life, we can only do so by consulting the greater or less facility with which they may be disposed of at prices corresponding to the general economic situation, that is, at economic prices.(3*) A commodity is more or less saleable according as we are able, with more or less prospect of success, to dispose of it at prices corresponding to the general economic situation, at economic prices. The interval of time, moreover, within which the disposal of a commodity at the economic price may be reckoned on, is of great significance in an inquiry into its degree of saleableness. It matters not whether the demand for a commodity be slight, or whether on other grounds its saleableness be small; if its owner can only bide his time, he will finally and in the long run be able to dispose of it at economic prices. Since, however, this condition is often absent in the actual course of business, there arises for practical purposes an important difference between those commodities, on the one hand, which we expect to dispose of at any given time at economic, or at least approximately economic, prices, and such goods, on the other hand, respecting which we have no such prospect, or at least not in the same degree, and to dispose of which at economic prices the owner foresees it will be necessary to wait for a longer or shorter period, or else to put up with a more or less sensible abatement in the price. Again, account must be taken of the quantitative factor in the saleableness of commodities. Some commodities, in consequence of the development of markets and speculation, are able at any time to find a sale in practically any quantity at economic, approximately economic, prices. Other commodities can only find a sale at economic prices in smaller quantities, commensurate with the gradual growth of an effective demand, fetching a relatively reduced price in the case of a greater supply. V. Concerning the Causes of the Different Degrees of Saleableness in Commodities. The degree to which a commodity is found by experience to command a sale, at a given market, at any time, at prices corresponding to the economic situation (economic prices), depends upon the following circumstances. 1. Upon the number of persons who are still in want of the commodity in question, and upon the extent and intensity of that want, which is unsupplied, or is constantly recurring. 2. Upon the purchasing power of those persons. 3. Upon the available quantity of the commodity in relation to the yet unsupplied (total) want of it. 4. Upon the divisibility of the commodity, and any other ways in which it may be adjusted to the needs of individual customers. 5. Upon the development of the market, and of speculation in particular. And finally. 6. Upon the number and nature of the limitations imposed politically and socially upon exchange and consumption with respect to the commodity in question. We may proceed, in the same way in which we considered the degree of the saleableness in commodities at definite markets and definite points of time,to set out the spatial and temporal limits of their saleableness. In these respects also we observe in our markets some commodities, the saleableness of which is almost unlimited by place or time, and others the sale of which is more or less limited. The spatial limits of the saleableness of commodities are mainly conditioned -- 1. By the degree to which the want of the commodities is disturbed in space. 2. By the degree to which the goods lend themselves to transport,and the cost of transport incurred in proportion to their value. 3. By the extent to which the means of transport and of commerce generally are developed with respect to different classes of commodities. 4. By the local extension of organised markets and their inter-communication by 'arbitrage'. 5. By the differences in the restrictions imposed upon commercial inter-communication with respect to different goods, to interlocal and, in particular, in international trade. The time limits to the saleableness of commodities are mainly conditioned -- 1. By permanence in the need of them (their independence of fluctuation in the same). 2. Their durability, i.e. their suitableness for preservation. 3. The cost of preserving and storing them. 4. The rate of interest. 5. The periodicity of a market for the same. 6. The development of speculation and in particular of time-bargains in connection with the same. 7. The restrictions imposed politically and socially on their being transferred from one period of time to another. All these circumstances, on which depend the different degrees of, and the different local and temporal limits to, the saleableness of commodities, explain why it is that certain commodities can be disposed of with ease and certainty in definite markets, i.e. within local and temporal limits, at any time and in practically any quantities, at prices corresponding to the general economic situation, while the saleableness of other commodities is confined within narrow spatial, and again, temporal, limits: and even within these the disposal of the commodities in question is difficult, and, in so far as the demand cannot be waited for, is not to be brought about without a more or less sensible diminution in price.