The basic facts of economics

by Louis F. Post

IV. Money

All allocations of Wealth, from the two primary ones—Wages and Rent—to the least of all that are secondary to either of those two, are made through Trade, and in the course of Trade are measured by comparisons of Value, which is the universal regulator of Trade. And as in Production so in Distribution, for Value measurements Money is the more or less stable yardstick and Money terms the spokesmen.

Would we know the Value of Wealth in any of its distributive allotments, we must look for it in terms of Money. Would we know the Value of any of the various kinds and degrees of Labor that have produced it, Money terms offer us the only language we can use or understand. Would we know the Value of any of the various kinds and degrees of Land from which and upon which such Wealth has been produced by Labor—whether identified by the term Rent as in Economics or by such colloquial or business terms as “groundrent,” or “selling price,”—Money is our sole interpreter, defective though it be. Would we place any or all of this information on record, we must do so in terms of Money.

What, then, is Money—this prestidigitateur of both Production and Distribution? Is it coin? Is it a promise to pay? Is it a fiat of Value? Is it a magic signal?

Before considering whether or not it is coin, let us think of how slightly coin is used in Trade. Before suggesting promises to pay, let us reflect upon the variability and questionability of promises. Before falling back upon “fiat,” let us know somewhat of the wisdom and responsibility behind the “fiat.”

If we probe deep, as in these Lessons we have tried to do, shall we not find that the only level of Value is the Labor level?

Not Labor time. That varies in Value with individuals. But Labor service or product. And do not the market prices of stable Labor products come as near to the Value level as may be necessary for all the purposes of Trade relations?

An absolute level of Value is doubtless as far beyond the possibilities as an absolute sea level. But as we adopt a “mean level” of the sea, why not a “mean level” of Value? And why not express the relations of this level in terms of Money properly stabilized?

The most conspicuous method yet suggested for realizing such a Value level takes the specific form of a proposal to determine Money standards by frequent comparisons with the Price level of simple types of Wealth. Resting nominally upon the Value in Trade of such staples, this method rests fundamentally upon the Economic fact that Labor, as the continuous producer of all Wealth, is the real source and regulator at all times of all Values in the channels of Trade, and that Money is the measuring rod and its terms the language.

To go farther into this Economic field would necessitate a surface survey of Economic intricacies, and these pages aim only at clarifying fundamentals. Having returned from the Basic Facts, upon which all Economic details rest, to the Money surface with which it began, our common-sense primer for advanced students is at the end of its task.

SEVENTH LESSON
REVIEW

The science of Economics, having now been traced from its surface to its three Basic Facts and back to the surface, let us, for the purpose of bringing the whole subject compactly within its narrowest limits, retrace our steps briskly but thoughtfully by way of review.

Economic accomplishments are measured by Money standards and expressed in Money terms. Resting on the surface, those standards and terms spread over the whole Economic area.

Beneath that surface we first find Trade, for which Money is the medium or the means of expressing relative values and adjusting balances. Trade consists essentially in interchanges of commodities, inclusive of natural resources and of human service. It is not an arbitrary custom or set of customs, but a phenomenon of natural law through which artificial objects are produced to completion and final delivery. But Trade, though lying beneath the Money surface of Economics, is not a basic fact of that science.

Only by piercing through the Trade surface as well as the Money surface, can the bottom level of the Basic Facts of Economics be reached. Those facts consist of distinct categories which comprehend in generalized forms the myriads of miscellaneous facts with which the Science of Economics is concerned.

Of those categories or Basic Facts there are in number neither more nor less than three—Man, Natural Resources, Artificial Objects.

All Artificial Objects are produced by Man from and upon Natural Resources. The technical term for the activities of Man in that connection is Labor; for Natural Resources, Land; and for Artificial Objects, Wealth. In technical Economic terms, therefore, all Wealth is produced from and upon Land by Labor.

Many colloquial and business subdivisions of those three categories may be useful provided they be not mixed in their meanings.

One of those subdivisions is Capital, which, in its technical meaning, is distinctively a part of Wealth produced by Labor from and upon Land. It is, however, often used loosely to include Land, the technical term for Natural Resources. Even slaves, and by Economic as well as by private business classification, have been placed in the subcategory called Capital, a form of Wealth; and this notwithstanding that as units of the human factor, slaves belong in the Labor category of Economics. Although such loose distinctions may be of use in private business accountings, they are intolerable in the science of Economics, which, like every other science, demands precision in the differentiation of terms.

The application of Man’s powers of body and mind to Natural Resources for the production of Artificial Objects—of Labor to Land for the production of Wealth—is the Productive Process in Economics. It involves such subcategories as business enterprise, professional service, invention, hired-man work—in a word, every grade of useful activity. These subcategories are developed by industrial specialization, or, in technical Economic terms, Division of Labor, which necessitates another subcategory. This is Trade.

Without Trade, products of Labor specialization would remain forever useless; but through Trade the most minute and incomplete of those products is brought to its useful place in the aggregate of Wealth—ploughshares to ploughframes, for instance, or ore to the steel of the factory, or wallpaper to the interior of the house.

The Productive Process though intricate through specialization and Trade, is readily observable by generalization into the three major categories, Labor and Land and Wealth. In observing that Process care must be taken to distinguish delivery from Distribution. Delivery is part of the Productive Process. No Wealth is completely produced until it has been delivered to ultimate consumers. But Distribution has to do with Wealth apportionment.

In apportionment, or Distribution, there are two major categories, Wages and Rent, corresponding respectively to the two Production categories, Labor and Land. A minor Distributive category, corresponding to the minor category in Production called Capital, is distinguished as Interest. This term identifies the earnings of Capital. Inasmuch, however, as Capital is part of Labor-produced Wealth, Interest must be a subdivision of Labor-earned Wages.

The Wages category in Distribution comprises, fundamentally, all that part of Labor-produced Wealth which is not allocated by natural Economic law to Rent for permission to use Land. This allocation is determined by the greater desirability of some Natural-Resource locations (Land) over the most desirable that may be had for the taking—of those at the “Margin of Production” as it is technically called, the “margin of cultivation” as it was called when agricultural areas alone were thought of as Land, at the Economic frontier as it may be most significantly described.

All assignments of Wealth in Distribution being determined by comparisons of desirability of service (Value measured in terms of Money), we find ourselves at the close of our brief review back at the Money surface of Economics where we began our delving expedition down to the Basic Facts.

As a result of that expedition we know, if we think with clarity and fidelity, that Economics is the science, not of making Money, but of Producing and Distributing Artificial Objects from and upon Natural Resources by Man. The usefulness of our expedition depends upon our grasp of and fidelity to the generalization of all Economic facts into those Basic Facts which are respectively distinguished in Economic terminology as Land, Labor and Wealth.