CHAPTER XII.
MONEY.
76. Barter. When exchanges are made by giving one ordinary commodity for another, as a sack of corn for a side of bacon, or a book for a telescope, we are said to barter them. The operation is also called truck (French, troc, barter). Among uncivilised races trade is still carried on in this way; a traveller going into the interior of South Africa takes a stock of beads, knives, pieces of iron, looking-glasses, &c., in order that he may always have something which the natives will like to receive in exchange for food or services. People still occasionally barter things in England, or the United States, but this is seldom done, owing to the trouble which it gives.
If, for instance, I want a telescope, in exchange for a book, I shall probably have to make many inquiries, and to wait a long time before I meet with a person who has a telescope to spare, and who is also willing to take my book in exchange. It is very unlikely that he who has a telescope will just happen to want that particular book. A second difficulty is, that the book will probably not be worth just as much as the telescope, and neither more nor less. He who owns a valuable telescope cannot cut it up, and sell a part to one and a part to another; this would destroy its value.
77. Convenience of Money. With the aid of money all the difficulties of barter disappear; for money consists of some commodity which all people in the country are willing to receive in exchange, and which can be divided into quantities of any amount. Almost any commodity might be used as money in the absence of a better material. In agricultural countries corn was so used in former times. Every farmer had a stock of corn in his own granary, and if he wanted to buy a horse or cart, he took so many sacks of corn to his neighbour's granary in exchange. Now suppose that, with corn as money, a farmer wanted to part with a cart and get a plough instead; he need not inquire until he finds a person willing to receive a cart, and give a plough in exchange. It is sufficient if he find one farmer who will receive a cart and give corn, and any other farmer who will give a plough and receive corn. No difficulty arises, too, if the cart or plough are not of equal value; for if the cart be the more valuable, then the farmer finally gets for it the plough together with enough corn to make up the difference. Money thus acts as a medium of exchange; it is a go-between, or third term, and it facilitates exchange by dividing the act of barter into two acts, in this way—
No doubt it turns one act of exchange into two; but the two are far more easy to manage than one, because they need not be made with the same person.
78. Money as a Measure of Value. When money is used in exchange, he who receives money is said to sell goods, and he who pays money is said to buy or to purchase. In each case there is an act of exchange, and sales and purchases are not really different in nature from acts of barter, except that one of the commodities given or received is employed for the purpose of arranging the exchange. Thus money may be called current commodity, because it is merchandise chosen to run about as a medium of exchange. Now, in every purchase or sale there must be some proportion between the quantity of the money, and the quantity of the other commodity. This proportion expresses the value of the one commodity as compared with the other. Value in exchange means nothing but this proportion, as was before explained (section 72). Now when money is used, the quantity of money given or received for a certain quantity of goods is called the price of that goods, so that the price is the value of goods stated in money. But as money when once introduced is used in almost every act of exchange, a further great advantage arises. We are able to compare the value of any commodity with that of any other commodity. If we know how much copper may be had for so much lead; how much iron for so much steel; and so on with zinc and brass, bricks and timber, and so forth, it would not be possible to compare the value of copper with zinc, or iron with timber. But if we know that for one ounce of gold we can get 950 ounces of tin, 1,700 ounces of copper, 6,400 ounces of lead, and 16,000 ounces of wrought iron, then we learn without any trouble that for 1,700 ounces of copper we can get 16,000 ounces of iron, and so on. Thus gold or any other substance used as money serves as a common measure of value; it measures the value of every other commodity, and thus enables us to compare the value of each commodity with that of every other.
This is an immense convenience. It leads every one to think and speak of the values of things in terms of a money known to everybody. All lists of values of goods are given as lists of prices and everybody understands these prices and can compare the prices in one list with those in another. Money may then be said to have two chief functions. It serves as
(1) A medium of exchange.
(2) A common measure of value.