Why a poor community lacks money
A poor community has little money because it cannot afford more; it gets along with less money than is convenient just as it gets along with fewer indirect agents of every other kind than it could use. Pioneers in a poor community where the average wealth is low, cannot afford to keep a large number of wagons, plows, good roads, or school-houses. If the community were wealthy enough it would have more of these and of other things, and great as is the convenience of money, poorer communities have to do with little of it. It is, therefore, a confusion of cause and effect for poor communities to imagine that their poverty is due to lack of money.
The use of money as a common denominator
2. Out of its use as a medium of exchange comes the use of money as a common denominator of values. Money serves as a "common denominator," for, as all other things can be expressed in terms of money, through it the value of other things can be compared. The other things can be expressed in money because they are constantly exchanged for it. All things being compared with money, can in turn be compared with each other. Some consider this service as a common denominator to be the primary and most important function of money. Sometimes a money of account is found, which is not in use as a medium of exchange. Cattle and slaves have served as money of account while not used as a medium of exchange in larger transactions. Money of account is used, as the shilling in New York, which for a century has not been in use at all as a medium of exchange. It is, however, only apparently a denominator of value; the shilling represents five fourths of ten cents. The actual standard is the dollar; the shilling is only a habitual form of speech and is mentally reduced to terms of the money in use. A decimal system is a great convenience in the use of money as a common denominator, but not indispensable. It is a striking fact that England, until a few years ago the greatest industrial nation, still uses a money unit requiring cumbrous calculations.
Money used as a storehouse for saving.
3. Other uses of money are as a storehouse of saving and as a standard of deferred payments. These uses grow out of those before mentioned. The standard of deferred payments is the unit of value in which debts are agreed to be paid later. It is evidently most convenient, and therefore almost inevitable, that the common denominator in which all values are expressed from day to day should continue to be taken as the value unit when the completion of the exchange is delayed a day, a month, or a year. This will be more fully discussed at a later stage of our study.
The use of money as a storehouse of saving was more common formerly than it is now, when better ways than the hoarding of money are found for "laying up for a rainy day." In some measure, however, money is hourly serving this use, which is still an important one. Money kept to be used to-morrow or five years hence is a storehouse of value for twenty-four hours or for five years. In either case it is being kept to complete at a later time its use as a medium of exchange. A thing ceases to be money, logically viewed, the moment its owner keeps it without the purpose that it shall be spent ultimately. The typical miser is a man who has lost his reason as regards the money use. Money must be deemed, therefore, to perform the same essential service as a storehouse of saving that it does as a medium of exchange. In either case it is to be kept only to the moment when it will afford the maximum of pleasure.
§ III. THE VALUE OF TYPICAL MONEY
The money use is added to other uses
1. The money use, historically considered, is a new use added to a good, and increases the demand for that good. The history of any particular kind of money may be traced back to a point where it was not money, since which the money use has been added gradually to the other uses. The value of the material later to become money is determined, as is that of any good, according to its marginal utility in all possible applications. No new theory is required to explain the value of this same commodity as it gradually acquires the added use of a medium of exchange. The new use influences demand for the thing just as do the other uses. What is here said must be understood as applying to typical money, which is at the same time a commodity having other uses. Other things that are not typical money come later to be used as money, under legal regulations.