The Value of Money

by Benjamin M. Anderson

5. That the demand for the article should be more than local.

6. That it be cheaply transportable.

7. That commerce between localities in the article be unrestricted.

8. That demand for the article be constant, not fluctuating, in time.

9. That the article be durable.

10. That it be uniform in quality, so that standardization is easy.

In general, Menger's list meets the requirements often laid down for a good medium of exchange. In general, to the extent that any commodity meets these tests, it will be saleable. Commodities will vary indefinitely in the extent of their saleability.

Starting with the distinction between value and saleability, and with the analysis of the circumstances affecting saleability, we may now undertake to see how money tends to develop out of a barter economy. Suppose that a man, in a barter economy, has a good of low saleability, which he wishes to trade for some other specified commodity. He finds no one who possesses the commodity he wants who is willing to trade with him. But if he can trade his article of low saleability for some other commodity of higher saleability, still not the thing he wants, he has yet made progress, he has got one step nearer the object which he does want. It will be possible now, perhaps, to trade the new article, of higher saleability, for the commodity he wants. If not, he can trade it for some article of still higher saleability, which he can finally trade for the article he wants. By several indirect exchanges, he finally reaches his object. Incidentally, it is erroneous to distinguish money and barter economies as economies based on direct and indirect exchange. The barter economy may well involve much more indirection than the money economy, in many cases.

If there be in the market some one commodity which has a conspicuously higher degree of saleability than any other, the more sagacious men in the market will make it a point to get hold of it and accumulate it in excess of their anticipated consumption of it. They will do this, because they will see that they can thereby get other things which they do need more easily than in other ways. With the accumulation of a given kind of highly saleable goods, in excess, by a few men in the group, in the expectation that the surplus will subsequently be used to buy other goods,—as yet perhaps not specifically determined—we have, not money, but a big step toward money. At first only a few grasp the great idea. They succeed and become wealthy. Then others see the advantage of the thing, and imitate them. The prestige of the wealthy and successful men would induce imitation even if the advantage were not clearly seen. Then a tradition and a custom grows up. With the growth of tradition and custom, picking out one or a small number of things as particularly desirable objects to accumulate because of their saleability, with the practice of accumulating these articles in excess of intended consumption, money becomes an accomplished fact. There is no need for agreement or legislation. Money is not, in its origin, certainly, a matter of law or conscious public planning.

With the development of a highly saleable article into money, moreover, we have further a great increase in that saleability itself. The quality which made the practice possible becomes greatly enhanced by the practice. Menger thinks that this leads to an absolute difference between money and goods, the money article, which formerly was merely superior to other goods in saleability, now becomes absolutely saleable. The absoluteness of this distinction, which would make it a distinction in kind, rather than in degree, seems to me not to be sound. I think that the distinction remains a distinction of degree. For one thing, the development of money, while it adds to the saleability of the money-commodity, also adds to the saleability of other goods. Two things must be exchanged, in order that one may be! It is the business of money to facilitate exchange, to overcome the difficulties of barter, to bring about the fluid market. And it does this not merely by acting as a medium of exchange. The fact that goods can be priced in terms of money, can have a common measure of value, makes barter itself easier, as I have shown in my chapter on "Barter" in Part II. There are many articles in trade at the present time whose saleability is not much less than that of money, in ordinary times. Wheat in the grain pit is surely highly saleable. Stocks and bonds are. If it be objected that in the wheat market there is always some difference between buying price and selling price, if considerable quantities are involved, it may be answered that the same is true in the "money market" The man who has just negotiated a three months' loan of five hundred thousand dollars at 3½% may well have trouble in turning that loan over to someone else immediately without shaving ¼% from the money-rate! Besides, it is not true that values remain unchanged when a big buyer shifts from the bull to the bear side of the market. Buying price is higher than selling price in that case partly because his economic power has ceased to sustain the value of the wheat, and the price would not correctly express the value if it remained uninfluenced by that fact.