Why are gold and silver, and particularly gold, the standard money of the great part of the world to-day? The principles of social psychology which Carlile employs in explaining the historical development, are also important in explaining the present attitude of mankind toward gold and silver, and will serve, together with the general theory of social value, to answer the question as to the value which money receives from the employment of the money metal as a commodity.
It is worthy of note that neither of these questions has been seriously raised or discussed by most recent writers of the quantity theory type. Professors Kemmerer[456] and Fisher give no attention to them at all. Both assume money as circulating, as the starting point of the argument, without noticing how much is involved in the assumption. Neither, moreover, gives an analysis of the functions of money. Considerations drawn from the question as to the origin and functions of money are hard to bring into the quantity theory scheme. If money circulates, there are causes for it. Fully to understand those causes, would be to understand also the terms on which money circulates, that is to say, the prices. But then a quantity theory would be superfluous! And if the quantity theory answer should not be obviously in harmony with the answer already given by the theory of origin and functions, then doubt would be cast on the quantity theory explanation. The quantity theorists do well to avoid mixing up with their discussion considerations drawn from the general theory of value, and from the theory of the origin and functions of money.
The answer to the first question rests primarily in the fact that there are differences in the saleability of goods. Value and saleability are not the same thing. A copper cent has high saleability; a farm has low saleability.[457] Some valuable things cannot be exchanged at all. The Capitol at Washington cannot be exchanged, yet has value. Under a communistic or socialistic régime, exchange, as we now know it, would largely or wholly cease. An entailed estate cannot be sold, yet has value. If society should really come to the stable equilibrium of the "static state," most of the exchanges of lands,[458] securities, and other long-time income-bearers would cease, but they would still be valuable. I have developed these notions in my article on "Value" in the Quarterly Journal of Economics, Aug. 1915, and have referred to them again in the chapter on "Value" in the present book, and so need not expand the discussion here. Exchangeability and value are different characteristics of goods. Value is an essential precondition of exchangeability, but can exist without it. Value is, however, commonly increased by exchangeability. But the theory of exchangeability is a separate matter, and cannot be deduced from the theory of value alone.
Menger points out the difference between "buying price" and "selling price." You can buy a piano for $400. If you try the next minute to sell it for $375 you will probably fail. You may pay ten thousand dollars for a farm. The income of the farm may increase. The tax assessment may increase. The capital value of the farm may increase. And yet, you may have to wait for a long time before you find a buyer who will pay you ten thousand dollars for it. One buys pianos or farms, as a rule, only when one wishes to use them, or when one has such special knowledge of the market that one knows pretty definitely where purchasers can be found for a resale, at a profit. Even in such highly organized markets as the stock and produce exchanges, one cannot usually buy in quantity and sell immediately without some loss. "Buying price" and "selling price" of such a stock as Industrial Alcohol Preferred are sometimes five points apart, at a given time. The forced sale of land in bankruptcies, or for taxes, notoriously often bring prices far below the price which would correctly express the value of the land. It is only in the ideal fluid market assumed by static theory, where adjustments are instantaneous, where causal-temporal relations have become timeless logical relations, that values are perfectly expressed in prices.[459]
All these difficulties were enormously greater in days of primitive barter, before money and organized markets had been evolved. The difficulties of barter have been much elaborated in the literature of money. I shall recur to the topic in my chapter on the "Functions of Money." Part of the trouble arises from the "want of coincidence" in barter—the failure to find the man who has what you want, and who at the same time wants what you have. Goods have high or low saleability, depending, in considerable degree, on the universality of the desire for them. They may have high value if only a few rich men desire them, provided they be scarce. The paintings of old masters would be a case in point. Incidentally, the difference between buying price and selling price is often enormous in this case, and the making of a sale may well involve long and expensive negotiations. The difficulties of exchange here arise not alone from the limited market, however, but also from the fact that each painting is a unique, and a unique of high value. A good might have high saleability despite the fact that the ultimate demand for it comes from only a few rich men, if it could be easily subdivided and standardized.
Menger enumerates a number of circumstances connected with a good which increase its saleability. Among them are the following:
1. Widespread and intense desire for the thing (to which should be added, adequate wealth on the part of those who desire it).
2. Scarcity of the commodity in question.
3. Divisibility of the commodity.
4. Considerable development of the market.