The Value of Money

by Benjamin M. Anderson

Business confidence is a fact of social psychology. It is an organic phenomenon, with radiant points of control. It is a matter of inter-mental activity, rather than a thing in which each man makes an independent choice.

But this is to say nothing of credit phenomena that is not true of all value phenomena. All economic values are social values. The values of wheat or sugar or bicycles are social values. There are centers of power and prestige, growing out of the distribution of wealth, or various other social factors, which have a dominating influence on economic values, as a rule. Credit phenomena are merely part and parcel of the general system of economic motivation and control.

In Social Value (pp. 102-103) I have denied the doctrine of Meinong and Tarde that explicit belief, existential judgments, are essential to the existence of values, taking value in the generic sense, which includes æsthetic value, religious and patriotic value, legal, moral, and other values. I have pointed out that we do, at times, value ideal objects, the creatures of our imaginations. The dead sweetheart, or the Beatrice that never was (or that never was what she was imagined to be) may have tremendous value. Not merely things hoped for, but things hopelessly gone, as "The Lost Cause" to the Southerner, may be objects of value so high that other things, known to be real, may sink into insignificance beside them. Even in these cases, however, there must be a "reality-feeling" an unconscious presumption or assumption that the object valued is real. Indeed, belief, as distinguished from mere ideation, is an emotional "tang," an essentially emotional, rather than intellectual, fact. If it be present, the ideation and explicit judgment may be dispensed with.

It is, however, characteristic of economic values, particularly of the values of instrumental goods and of the goods with which business men make profits, that the tendency to raise the question of reality, to require explicit judgment, is strong. The successful business man is necessarily the man who does this, who does not too highly value the creatures of his imagination, when he imagines a vain thing. One need not, perhaps, seriously raise the question as to the reality of the loaf of bread he buys. Explicit judgment there would be superfluous. But very serious questionings come in whenever lands or houses or securities or bills of exchange come in. One needs to know what the facts are, and to make judgments based upon them. Hence, for all values of capital goods and income-bearers, for the values which pass in wholesale and speculative trading in general, the matter of belief is vitally important. Here, again, then, we have nothing in the psychological principles underlying credit phenomena to mark them off from the general field of value phenomena.

The general laws of value, then, apply in the case of credit phenomena. We find nothing unique in essence in them. The juridical relations, also, in so far as they have economic significance, shade into one another. To buy a bond from a bondholder is purchase and sale. To pay a borrower money for his personal note is lending. But from the standpoint of the theory of value and prices this distinction may be ignored. We may extend the idea of buying, selling, and price to cover all contracts where values are balanced against values, and expressed in terms of each other. Future money has its price in present money, just as much as present wheat has its price in present money. Really it is not future money against present money. It is a case of rights, which involve the payment of money in the future, sold for money, and priced in money. In general, it is rights, rather than things, which pass in economic exchange. Physical delivery does not constitute selling. Delivering a load of wheat to a railroad does not constitute sale of the wheat to the railroad; selling a farm does not involve any physical moving of the farm. Rights, in personam or in rem, are objects of economic value, and the exchange of these rights makes up the bulk, if not the whole, of economic exchange. (Exchange may be limited to the transfers of juristic rights, without value being so limited. I have discussed the relations of value and exchange in the chapter on "Value," above.) Property rights are commonly conceived of as the proper objects of buying and sale. Contracts involving the future services of free men stand legally on a different footing from contracts regarding physical goods. But economic analysis is not greatly concerned with these distinctions, except in so far as they affect the values of the things exchanged, and so the terms of the exchanges. I do not believe that the legal distinctions can be made to run on all fours with any significant economic distinctions, and shall not undertake to make them do so. In the phenomena we have simply cases of buying and selling (in a generalized sense of those terms) of rights, at prices (by a very slight extension of the term, price, to which the market is well accustomed). The terms of these exchanges, the prices, are governed by values, social economic values, in no wise different from the values which govern the prices in exchanges which we do not class as credit transactions. I say that credit phenomena are exchanges of rights. This is true of all exchanges. We do not exchange rights for money. We exchange rights to other things for rights to money. The mere physical transfer, even of money, does not give rights to the money. I may merely be giving you the money for safe keeping, or for use for my purposes. While the law makes the rights to money that has left the hands of its owner less lasting, as against innocent third parties, than in the case of other objects, and while the right to money is always, or almost always, met by returning other money of equal amount, even in the case of money it is a right, and not a mere physical transfer, that is significant.

Our problem regarding credit is, then, much simplified. We have simply to pick out certain economic exchanges to which the name of credit transactions has been applied,—a various and heterogeneous set of exchanges, in many ways—and study them, to find their peculiarities. These peculiarities will not make them exceptions to the general laws of value. They will make them merely special cases. To find essential principles marking off credit transactions, at large, from non-credit transactions is an exceedingly difficult thing. There are more differences among credit transactions themselves, than there are between the genus, credit transactions, and the class of things not called by that name.

Thus, monthly payments of rent, of wages, of college professors' salaries, are not commonly called credit transactions. The monthly payment of grocery bills, or of telephone bills, involves credit. Where is a real difference to be found? On the other hand, between book credit between grocer and patron on the one hand, and a bank-note or deposit credit on the other, the difference is large, in many practically important ways. Between a call loan and a ten year agricultural mortgage-note, the differences are even greater.

One may be disposed to find the differences between credit transactions and non-credit transactions in the fact that the former stipulate a definite sum of money, due at definite times. This would partly differentiate a bond, say, from a stock. The bond not merely calls for stipulated yearly payments, but also calls for a definite payment at the end. This would, however, exclude British Consols from the list of credit instruments! British Consols differ from safe preferred stocks in legal, rather than in economic, ways. Legally they are alike in that no terminal payment is called for. Practically they are alike in that annual regular sums may be expected. It may at least be said of credit transactions that stipulated money payments, either at a different time or a different place, are called for. This would include the telegraphic transfers of funds, and would exclude the case where A, a farmer, does a day's work for B, a neighbor, for the promise of a day's work in return at a later season. The latter transaction involves many of the elements that definitions of credit have included, but I think that we may at least limit our conception of credit transactions to transactions within a money economy, where money, as a measure of values, functions in the calculations. Shall we, however, limit credit transactions to cases where a stipulated amount of money is named in the contract, for a stipulated time?

Shall we exclude contracts where the payment of money is made contingent on anything? By contingency here I mean legal contingency. This test would exclude the highest grade preferred stock. It would include the shakiest bonds that contained, in the terms of the contract, no contingency. But where, then, would one place such an instrument as the Seaboard Airline Adjustment 5% Bonds, which may default in a given year half of the interest, if it is not earned,[506] and which yet call for the payment of the principal at a stipulated time?

What shall we say of "borrowing and carrying" transactions on the stock exchange? Is not the loan of stocks a real credit transaction? Ordinarily, when stocks are put up as collateral, one thinks of the money as being lent, and the stock merely as a pledge. But in the case of borrowing stocks by a bear to deliver next day, the transaction is definitely thought of as a loan of stock. It is sometimes paid for, the bear paying the bull a premium, instead of receiving interest on the money he has turned over to the bull as a "pledge." The more usual thing, is, of course, for the bull to pay the bear interest. But in a contract like this, there are many contingencies. As the stock rises in value, the bear must lend more money to the bull; if the stock falls, the bull must return part of the money to the bear. Both times and amounts are here contingent, even though in the end the amounts lent and repaid balance. Call loans, of course, do not call for payment at a stipulated time, and the same is true of bank-deposits and bank-notes, and of many other forms of credit. Interest on deposits in mutual savings banks is contingent, legally, as to amount. Are insurance policies credit instruments? What of endowment policies?