1. A Common Measure, or Common Denominator, of Value.
2. A Medium of Exchange.
3. A Standard of Value.
F. A. Walker,[221] however, says: “Money is the medium of exchange. Whatever performs this function, does this work, is money, no matter what it is made of.... That which does the money-work is the money-thing.”
(1.) [If we had no money] the first and most obvious [inconvenience] would be the want of a common measure for values of different sorts. If a tailor had only coats, and wanted to buy bread or a horse, it would be very troublesome to ascertain how much bread he ought to obtain for a coat, or how many coats he should give for a horse. The calculation must be recommenced on different data every time he bartered his coats for a different kind of article, and there could be no current price or regular quotations of value. As it is much easier to compare different lengths by expressing [pg 287] them in a common language of feet and inches, so it is much easier to compare values by means of a common language of [dollars and cents].
The need of a common denominator of values (an excellent term, introduced by Storch), to whose terms the values of all other commodities may be reduced, and so compared, is as great as that the inhabitants of the different States of the United States should have a common language as a means by which ideas could be communicated to the whole nation. A man may have a horse, whose value he wishes to compare in some common term with the value of his house, although he might not wish to sell either. A valuation by the State for taxation could not exist but for this common denominator, or register, of value.
(2.) The second function is that of a medium of exchange. The distinction between this function and the common denominator of value is that the latter measures value, the former transfers value. The man owning the horse, after having measured its value by comparison with a given thing, may now wish to exchange it for other things. This discloses the need of another quality in money.
The inconveniences of barter are so great that, without some more commodious means of effecting exchanges, the division of employments could hardly have been carried to any considerable extent. A tailor, who had nothing but coats, might starve before he could find any person having bread to sell who wanted a coat: besides, he would not want as much bread at a time as would be worth a coat, and the coat could not be divided. Every person, therefore, would at all times hasten to dispose of his commodity in exchange for anything which, though it might not be fitted to his own immediate wants, was in great and general demand, and easily divisible, so that he might be sure of being able to purchase with it whatever was offered for sale. The thing which people would select to keep by them for making purchases must be one which, besides being divisible and generally desired, does not deteriorate by keeping. This reduces the choice to a small number of articles.
This need is well explained by the following facts furnished by Professor Jevons: “Some years since, Mademoiselle Zélie, [pg 288] a singer of the Théâtre Lyrique at Paris, made a professional tour round the world, and gave a concert in the Society Islands. In exchange for an air from ‘Norma’ and a few other songs, she was to receive a third part of the receipts. When counted, her share was found to consist of three pigs, twenty-three turkeys, forty-four chickens, five thousand cocoanuts, besides considerable quantities of bananas, lemons, and oranges. In the Society Islands, however, pieces of money were very scarce; and, as mademoiselle could not consume any considerable portion of the receipts herself, it became necessary in the mean time to feed the pigs and poultry with the fruit.”[222]
(3.) The third function desired of money is what is usually termed a “standard of value.” It is, perhaps, better expressed by F. A. Walker[223] as a “standard of deferred payments.” Its existence is due to the desire to have a means of comparing the purchasing power of a commodity at one time with its purchasing power at another distant time; that is, that for long contracts, exchanges may be in unchanged ratios at the beginning and at the end of the contracts. There is no distinction between this function and the first, except one arising from the introduction of time. At the same time and place, the “standard of value” is given in the common denominator of value.