The Nature and Uses of Money

Section 1. General Remarks

In a society ever so little advanced in civilization, no single individual produces all that is necessary to satisfy his own wants; and it is rarely that an individual, by his single exertion, creates even any single product; but even if he does, his wants are not limited to that single article; they are numerous and various, and he must, therefore, procure all other objects of his personal consumption, by exchanging the overplus of the single product he himself creates beyond his own wants, for such other products as he stands in need of.

Individual producers keep for their own use but a very small part of their own products. The gardener, of the vegetables he raises, the bake; of the bread he bakes, the shoemaker, of the shoes he makes, and so of all others; the great bulk, nay, almost the whole of the products of every community, arrive at consumption by the medium of exchange.

Now, money is precisely that commodity.

The 2 qualities, that give a general preference of value, in the shape of the current money of the country, to the same amount of value in any other shape, are:

1. The aptitude, in the character of an intermedial object of exchange, to help all who have any exchange or any purchase to make, that is to say, every member of the community, towards the specific object of desire. The general confidence, that money is a commodity acceptable to every body, inspires the assurance of being able, by one act of exchange only, to procure the immediate object of desire, whatever it may be; whereas, the possessor of any other commodity can never be sure that it will be acceptable to the possessor of that particular object of desire. This is the reason, why it has been erroneously concluded, that exchange and transfer are the basis and origin of the production of wealth, and of commerce in particular; whereas they are only secondary and accessory circumstances; inasmuch as, were each family to raise the whole of the objects of its own consumption, as we see practised in some instances in the back settlements of the United States, society might

2. The capability of subdivision and precise apportionment to the amount of the intended purchase; which capability is a recommendation to all who have purchases to make; in other words, to every member of the community. Every one is, there- fore, anxious to barter for money the product whereof he holds a superfluity, and which is commonly that he himself pro- duces; because, in addition to the other quality above stated, he feels sure of being able to buy with its value in that shape as small or as large a portion of corresponding value, as he may require; and because he may buy, whenever, and wher- ever he pleases, such objects as he may desire to have in lieu of the product he has sold originally.

The sole reason why a man elects to receive the coin in pref- erence to every other article, is, because he has learnt from experience, that it is preferred by those whose products he has occasion to purchase. Crown pieces derive their circula- tion as money from no other authority than this spontaneous preference= and if there were the least ground for supposing, that any other commodity, as wheat, for instance, would pass more currently in exchange for what they calculate upon want- ing themselves, people would not give their goods for crown pieces, but would demand wheat, which would then be in- vested with all the properties of money. And this has occurred occasionally in practice, where the authorized or government money has consisted of paper destitute of credit or public confidence.

In a very advanced stage of civilization, when individual wants have become various and numerous, and productive opera- tions very much subdivided, exchanges become a matter of more urgent necessity, as well as much more frequent and more complicated; and personal consumption and barter in kind becomes less practicable. or instance, if a man makes not the whole knife, but the handle of it only, as in fact is the case in towns where cutlery is conducted on a large scale, he does not produce any thing that he can turn to account; for what could he do with the handle without the blade? He can not himself consume the smallest part of his own product, but must unavoidably exchange the whole of it for the necessaries or conveniences of life, for bread, meat, linen, &c. But nei- ther baker, butcher, nor weaver, can ever stand in need of an article, that is fit for nobody but the finishing cutler, who can not himself give either bread or meat in exchange; because he produces neither; and who must, therefore, give some one commodity, that, by the custom of the country, may be ex- pected to pass currently in exchange for most others. Custom, therefore, and not the mandate of authority, desig- nates the specific product that shall pass exclusively as money, whether crown pieces or any other commodity whatever. 236 The more frequent recurrence of the exchange of every indi- vidual product for the commodity, money, than for any other product, has attached particular names to this transaction; thus, to receive money in exchange is called, selling, and to give it, buying.

In this way originated the use of money. These positions are by no means purely speculative; for on them must all argu- ments, and laws, and regulations, on the subject of money, be grounded. A system built upon any other foundation can pos- sess neither beauty nor solidity, and must fail to fulfil the object of its construction. With the view of throwing the utmost possible light upon the essential properties of money, and the principal contingen- cies it is subject to, I shall treat of these particulars in sepa- rate sections, and endeavour to enable such as may give me their attention, to follow with ease the chain of connexion, notwithstanding that classification; and themselves to arrange in one comprehensive view the whole play of the mechanism, and the causes of that derangement, which human folly or misfortune may occasionally effect.

Thus, money is the more requisite, the more civilized a na- tion is, and the further it has carried the division of labour. 234 Yet history contains precedents of considerable states, in which the use of any specific article, as money, was utterly unknown; as we are told it was among the Mexicans at the time of the discovery. We are informed, that, just about the period of their conquest by the Spanish adventurers, they were begin- ning to employ grains of cacao as money, in the smaller trans- actions of commerce. 235

I have referred to custom, and not to the authority of government, the choice of the particular article that is to act as money in preference to every other= for though a government may coin what it pleases to call crowns, it does not oblige the subject to give his goods in exchange for these crowns, at least not where property is at all respected.

Nor is it the mere impression, that makes people consent to take this coin in exchange for other products. Money passes current like any other commodity; and people may at liberty barter one ar- ticle for another in kind, or for gold in bars, or silver bullion.