with his own, and leave the laborers more leisure for work, and the landlord for being idle.' The capitalists, except those who are producers of the precious metals, derive no part of their income from those metals, since they only get them by buying them with their own produce; while all other persons have their incomes paid to them by the capitalists, or by those who have received payment from the capitalists; and, as the capitalists have nothing from the first except their produce, it is that and nothing else which supplies all incomes furnished by them. There cannot, in short, be intrinsically a more insignificant thing in the economy of society than money, except in the character of a contrivance for sparing time and labor. It is a machine for doing, quickly and commodiously, what would be done, though less quickly and commodiously, without it; and, like many other kinds of machinery, it only exerts a distinct and independent influence of its own when it gets out of order.2 Mankind, from habit, says Mill, came to regard money as being peculiarly wealth; and that objects are useful and valuable in ratio to their capacity of being exchanged for it. But is not such capacity a proper test of value? Have articles that will not exchange for money any value? Is not the uniform experience of mankind, from the time that exchanges first began to be made, of more force than Mill's assertion to the contrary? Are not gold and silver something beyond mere tickets or orders invented "for doing quickly and commodiously what would be done, but less quickly and commodiously, without them?" Are they not the most, instead of being the least, significant things in the economy of society? As capital, they can always be loaned at interest. They are the universal equivalent, that into which every one seeks to convert whatever he acquires not necessary to his immediate wants. They are the only articles fitted to constitute the reserves of society, as they are imperishable, and preserve their value, uniform, from age to age. They are the only articles which can be sent to every part of the world with the certainty of always being accepted at their cost. If the precious metals alone, of all articles of merchandise or property, possess such attributes, then Mill's description of their nature and function is inadequate and puerile to the last degree. 1 Nothing more strikingly illustrates Mill's incapacity for scientific inquiry, the puerility of his mind, and the infirmity of his temper, than his assertion that one reason for the conversion by the farmer of his products into money was to give his landlord “more leisure for being idle." He could not discuss a purely scientific subject without intruding spiteful and irrelevant personalities and flings. * Political Economy, vol. ii. pp. 7-9. "When," says Mill, "one person lends to another, as well as when he pays wages or rent to another, what he transfers is not the mere money, but a right to a certain value of the produce of the country, to be selected at pleasure; the lender having first bought this right by giving for it a portion of his capital. What he really lends is so much capital; the money is the mere instrument of transfer. But the capital usually passes from the lender to the receiver, through the means either of money or of an order to receive money; and, at any rate, it is in money that the capital is computed and estimated. Hence, borrowing capital is universally called borrowing money; the loan market is called the money market; those who have their capital disposable for investment on loan are called the moneyed class; and the equivalent given for the use of capital, or in other words, interest, is not only the interest of money, but, by a grosser perversion of terms, the value of money. This misapplication of language, assisted by some fallacious appearances which we shall notice and clear up hereafter, has created a general notion among persons in business, that the value of money, meaning the rate of interest, has an intimate connection with the value of money in its proper sense, the value or purchasing power of the circulating medium. We shall come to this subject before long; at present, it is enough to show that by value I shall always mean exchange value; and by money, the medium of exchange, not the capital which is passed from hand to hand through that medium. . . . "As the whole of the goods in the market compose the demand for money, so the whole of the money constitutes the demand for goods. The money and the goods are seeking each other, for the purpose of being exchanged. They are reciprocally supply and demand to one another. It is indifferent whether, in characteriz ing the phenomena, we speak of the demand and the supply of goods, or the supply and demand of money: they are equivalent expressions... "Supposing the money in the hands of individuals to be increased, their wants and inclinations collectively, in respect to consumption, remaining exactly the same, the increase of demand would reach all things equally, and there would be a universal rise of prices. We might suppose, with Hume, that some morning every person in the nation should wake and find a gold coin in his pocket; this example, however, would involve an alteration of the proportion in the demand for different commodities; the luxuries of the poor would, in the first instance, be raised in price, in a much greater degree than other things. Let us rather suppose, therefore, that to every pound or shilling or penny in the possession of any one, another pound, shilling, or penny were suddenly added. There would be an increased money demand; and, consequently, an increased money value, or price, for things of all sorts. This increased value would do no good to any one; would make no difference, except that of having to reckon pounds, shillings, and pence in higher numbers. It would be an increase of values only as estimated in money,- a thing only wanted to buy other things with; and would not enable any one to buy more of them than -- before. Prices would have risen in a certain ratio, and the value of money would have fallen in the same ratio. "The very same effect would be produced on prices, if we suppose the goods diminished, instead of the money increased; and the contrary effect, if the goods were increased or the money diminished. If there were less money in the hands of the community, and the same amount of goods to be sold, less money altogether would be given for them, and they would be sold at lower prices; lower, too, in the precise ratio in which the money was diminished. So that the value of money, other things being the same, varies inversely as its quantity; every increase of quantity lowering the value, and every diminution raising it in a ratio exactly equivalent.1 If the money (gold and silver) of every person in a community were suddenly doubled, without any act of his own, would not every one be better off? No, says Mill: you have, in such case, two tickets, indeed, instead of one; but they will bring you only the articles or values that one would before. But suppose a person holding 10,000 sovereigns has added to them another 10,000. Having no occasion for the use of the latter amount for the purchase of food or clothing, or for expenses of any kind, he might, with great advantage, supplement his domestic utensils of iron by those of gold and silver. He might erect structures, or cover his roof, with a substance wholly indestructible by the elements. When the vast number of uses to which they could be applied, which now have to be supplied by materials so perishable as to impose, in their cost and repair, the greatest of burdens upon society, is considered, it would seem to have been an oversight in nature that that which is fitted to serve the highest uses should not have been produced in greater abundance. But the designs and scope of Providence embrace other matters than domestic utensils, fair structures, and impervious roofs. A solvent of all transactions had to be provided as the prime condition of human progress, and of high value in ratio to its quantity, to be easily borne about by those who were to use it. Gold and silver, therefore, could not be supplied in the same profusion as iron, without losing the greater part of the attributes which constitute their value as agencies in the progress and welfare of mankind. If they were to become as abundant as iron, all the operations of society 1 Political Economy, vol. ii. pp. 9-12. would have to pause till the place they now supply was made good by articles having similar attributes or functions in the new order of things. In the world constructed by the Economists, gold is almost wholly dethroned, without any other provision in its place. A world of their own creation would be the best commentary upon their absurd and incoherent theories. "When a person lends," says Mill, in effect, "as well as when he pays money or wages to another, that which he lends is not the money, but capital. The money is the mere instrument of transfer. But as capital usually passes from lender to receiver through the means of money, it is in money that the amount of capital is computed and estimated. Hence, the borrowing of capital is universally, but very improperly, called the borrowing of money. The language is just as much misapplied as it would be to call the transaction by which a person borrowed a load of potatoes for consumption, and a cart for the purpose of bringing them home, the borrowing of a cart: it is not the cart that is borrowed, but the potatoes. So when a man borrows a sovereign: the sovereign is not the capital borrowed, but the means by which it is borrowed." With Mill, as with Smith, it is not money (gold and silver) which constitutes a man's capital or his income, but that which gold and silver buys. The absurdity of all such distinctions has been already sufficiently demonstrated. "If we assume," continues Mill," the quantity of goods on sale, and the number of times these goods are resold, to be fixed quantities, the value of money will depend upon its quantity, together with the average number of times that each piece changes hands in the process. The whole of the goods sold (counting each resale of the same goods as so much added to the goods) have been exchanged for the whole of the money, multiplied by the number of purchases . made in the average by each piece. Consequently, the amount of goods and of transactions being the same, the value of money is inversely as its quantity, multiplied by what is called the rapidity of circulation. And the quantity of money in circulation is equal to the money value of all the goods sold, divided by the number which expresses the rapidity of circulation." 1 After referring to the increased amount of money (banknotes) wanted for extraordinary payments at certain periods of the year, he goes on to say: 1 Political Economy, vol. ii. p. 16. "If extra currency were not forthcoming to make these extra payments, one of three things must happen: Either the payments must be made without money, by a resort to some of those contrivances by which its use is dispensed with; or, there must be an increase in the rapidity of circulation, the same sum of money being made to perform more payments; or if neither of these things took place, money to make the extra payments must be withdrawn from the market for commodities, and prices, consequently must fall. An increase of the circulating medium, conformable in extent and duration to the temporary stress of business, does not raise prices, but merely prevents this fall. "The sequel of our investigation will point out many other explanations and qualifications with which the proposition must be received, that the value of the circulating medium depends on the demand and supply, and is in the inverse ratio of the quantity." The value of money, says Mill, is in inverse ratio to its quantity multiplied by the rapidity of its circulation. He might as well have framed a similar formula in reference to the value of a loaf of bread: "a loaf sufficient for the breakfast of one man, moving at the rate of one foot per second, will be sufficient for the breakfast of ten men, and of equal value to ten loaves, by moving at the rate of ten feet per second." In the application of his doctrine, the choice of position might be considered of some consequence. So, "if more money be required to move the crops, one of three things must happen: either the payments must be made without money; or there must be an increase in the rapidity of the circulation, the same amount of money being made to do double duty; or money must be withdrawn from the market for other commodities." The better way would seem to be to make money do double duty. "A nimble sixpence is better than a slow shilling" may be quoted in proof. An objection to the forced activity, or, indeed, to any activity of money, is the attrition which is estimated to reduce its value at the rate of one per cent annually.. If made to do double duty, its wear would equal two per cent. A piece would then last only fifty years. But if one could be made to do the duty of two, the relative gain would still be enormous. It would have been well for Mr. Mill to have detailed the process by which increased "rapidity of circulation" is to be secured. As by its use the ownership of money is always parted with, and as the propriety of its use depends 1 Political Economy, vol. ii. p. 21. |