In the case supposed, different portions of the supply of corn have
different costs of production. Though the twenty, or fifty, or one hundred
and fifty quarters additional have been produced at a cost proportional to
25_s._, the original hundred quarters per annum are still produced at a
cost only proportional to 20_s._ This is self-evident, if the original and
the additional supply are produced on different qualities of land. It is
equally true if they are produced on the same land. Suppose that land of
the best quality, which produced one hundred quarters at 20_s._, has been
made to produce one hundred and fifty by an expensive process, which it
would not answer to undertake without a price of 25_s._ The cost which
requires 25_s._ is incurred for the sake of fifty quarters alone: the
first hundred might have continued forever to be produced at the original
cost, and with the benefit, on that quantity, of the whole rise of price
caused by the increased demand: no one, therefore, will incur the
additional expense for the sake of the additional fifty, unless they alone
will pay for the whole of it. The fifty, therefore, will be produced at
their natural price, proportioned to the cost of their production; while
the other hundred will now bring in 5_s._ a quarter more than their
natural price—than the price corresponding to, and sufficing to
remunerate, their lower cost of production.
If the production of any, even the smallest, portion of the supply
requires as a necessary condition a certain price, that price will be
obtained for all the rest. We are not able to buy one loaf cheaper than
another because the corn from which it was made, being grown on a richer
soil, has cost less to the grower. The value, therefore, of an article
(meaning its natural, which is the same with its average value) is
determined by the cost of that portion of the supply which is produced and
brought to market at the greatest expense. This is the Law of Value of the
third of the three classes into which all commodities are divided.
§ 2. Such commodities, when Produced in circumstances more favorable,
yield a Rent equal to the difference of Cost.
If the portion of produce raised in the most unfavorable circumstances
obtains a value proportioned to its cost of production; all the portions
raised in more favorable circumstances, selling as they must do at the
same value, obtain a value more than proportioned to their cost of
production.
The owners, however, of those portions of the produce enjoy a privilege;
they obtain a value which yields them more than the ordinary profit. The
advantage depends on the possession of a natural agent of peculiar
quality, as, for instance, of more fertile land than that which determines
the general value of the commodity; and when this natural agent is not
owned by themselves, the person who does own it is able to exact from
them, in the form of rent, the whole extra gain derived from its use. We
are thus brought by another road to the Law of Rent, investigated in the
concluding chapter of the Second Book. Rent, we again see, is the
difference between the unequal returns to different parts of the capital
employed on the soil. Whatever surplus any portion of agricultural capital
produces, beyond what is produced by the same amount of capital on the
worst soil, or under the most expensive mode of cultivation, which the
existing demands of society compel a recourse to, that surplus will
naturally be paid as rent from that capital, to the owner of the land on
which it is employed.
The discussion of rent is here followed wholly from the point of
view of value, while before (Book II, Chap. VI) the law of rent
was reached through a limitation of the quantity of land due to
the influence of population. In the former case the rent and
produce were stated in bushels. By introducing price now (as the
convenient symbol of value), instead of the separate increased
demands of population in our illustration than used (p. 240), it
will be seen how the same operation, looking at it solely in
respect to value, brings us to the same law:
Price A B C D
per
Bushel.
24 18 12 6
bushels bushels bushels bushels
Total Rent. Total Rent. Total Rent. Total
value of value of value of value of
product. product. product. product.
$1.00 $24.00 $0.00 .... .... .... .... ....
$1.33 $32.00 $8.00 $24.00 $0.00 .... .... ....
$2.00 $48.00 $24.00 $36.00 $12.00 $24.00 $0.00 ....
$4.00 $96.00 $72.00 $72.00 $48.00 $48.00 $24.00 $24.00
It was long thought by political economists, among the rest even by Adam
Smith, that the produce of land is always at a monopoly value, because
(they said), in addition to the ordinary rate of profit, it always yields
something further for rent. This we now see to be erroneous. A thing can
not be at a monopoly value when its supply can be increased to an
indefinite extent if we are only willing to incur the cost. As long as
there is any land fit for cultivation, which at the existing price can not
be profitably cultivated at all, there must be some land a little better,
which will yield the ordinary profit, but allow nothing for rent: and that
land, if within the boundary of a farm, will be cultivated by the farmer;
if not so, probably by the proprietor, or by some other person on
sufferance. Some such land at least, under cultivation, there can scarcely
fail to be.
Rent, therefore, forms no part of the cost of production which determines
the value of agricultural produce. The land or the capital most
unfavorably circumstanced among those actually employed, pays no rent, and
that land or capital determines the cost of production which regulates the
value of the whole produce. Thus rent is, as we have already seen, no
cause of value, but the price of the privilege which the inequality of the
returns to different portions of agricultural produce confers on all
except the least favored portion.
Rent, in short, merely equalizes the profits of different farming
capitals, by enabling the landlord to appropriate all extra gains
occasioned by superiority of natural advantages. If all landlords were
unanimously to forego their rent, they would but transfer it to the
farmers, without benefiting the consumer; for the existing price of corn
would still be an indispensable condition of the production of part of the
existing supply, and if a part obtained that price the whole would obtain
it. Rent, therefore, unless artificially increased by restrictive laws, is
no burden on the consumer: it does not raise the price of corn, and is no
otherwise a detriment to the public than inasmuch as if the state had
retained it, or imposed an equivalent in the shape of a land-tax, it would
then have been a fund applicable to general instead of private advantage.
The nationalization of the land, consequently, would not benefit
the laboring-classes a whit through lowering the price to them, or
any consumer, of food or agricultural produce.
§ 3. Rent of Mines and Fisheries and ground-rent of Buildings, and cases
of gain analogous to Rent.
Agricultural productions are not the only commodities which have several
different costs of production at once, and which, in consequence of that
difference, and in proportion to it, afford a rent. Mines are also an
instance. Almost all kinds of raw material extracted from the interior of
the earth—metals, coals, precious stones, etc.—are obtained from mines
differing considerably in fertility—that is, yielding very different
quantities of the product to the same quantity of labor and capital. There
are, perhaps, cases in which it is impossible to extract from a particular
vein, in a given time, more than a certain quantity of ore, because there
is only a limited surface of the vein exposed, on which more than a
certain number of laborers can not be simultaneously employed. But this is
not true of all mines. In collieries, for example, some other cause of
limitation must be sought for. In some instances the owners limit the
quantity raised, in order not too rapidly to exhaust the mine; in others
there are said to be combinations of owners, to keep up a monopoly price
by limiting the production. Whatever be the causes, it is a fact that
mines of different degrees of richness are in operation, and since the
value of the produce must be proportional to the cost of production at the
worst mine (fertility and situation taken together), it is more than
proportional to that of the best. All mines superior in produce to the
worst actually worked will yield, therefore, a rent equal to the excess.
They may yield more; and the worst mine may itself yield a rent. Mines
being comparatively few, their qualities do not graduate gently into one
another, as the qualities of land do; and the demand may be such as to
keep the value of the produce considerably above the cost of production at
the worst mine now worked, without being sufficient to bring into
operation a still worse. During the interval, the produce is really at a
scarcity value.
Fisheries are another example. Fisheries in the open sea are not
appropriated, but fisheries in lakes or rivers almost always are so, and
likewise oyster-beds or other particular fishing-grounds on coasts. We may
take salmon-fisheries as an example of the whole class. Some rivers are
far more productive in salmon than others. None, however, without being
exhausted, can supply more than a very limited demand. All others,
therefore, will, if appropriated, afford a rent equal to the value of
their superiority.
Both in the case of mines and of fisheries, the natural order of events is
liable to be interrupted by the opening of a new mine, or a new fishery,
of superior quality to some of those already in use. In this case, when
things have permanently adjusted themselves, the result will be that the
scale of qualities which supply the market will have been cut short at the
lower end, while a new insertion will have been made in the scale at some
point higher up; and the worst mine or fishery in use—the one which
regulates the rents of the superior qualities and the value of the
commodity—will be a mine or fishery of better quality than that by which
they were previously regulated.
The ground-rent of a building, and the rent of a garden or park attached
to it, will not be less than the rent which the same land would afford in
agriculture, but may be greater than this to an indefinite amount; the
surplus being either in consideration of beauty or of convenience, the
convenience often consisting in superior facilities for pecuniary gain.
Sites of remarkable beauty are generally limited in supply, and therefore,
if in great demand, are at a scarcity value. Sites superior only in
convenience are governed as to their value by the ordinary principles of
rent. The ground-rent of a house in a small village is but little higher
than the rent of a similar patch of ground in the open fields.
Suppose the various kinds of land to be represented by the
alphabet; that those below O pay no agricultural rent, and that
all lands increase in fertility and situation as we approach the
beginning of the alphabet, but which, as far up as K, are used in
agriculture; that higher than K all are more profitably used for
building purposes, viz.:
A, B, C, ... | K, L, M, N, O, | ... X, Y, Z.
Now it will happen that land is chosen for building purposes
irrespective of its fertility for agricultural purposes. It will
not be true, as some may think, that no land will be used for
building until it will pay a ground-rent greater than the greatest
agricultural rent paid by any piece of land. It is not true, for
example, if N be selected for a building-lot, that it must pay a
ground-rent as high as the agricultural rent of K, the most
fertile land cultivated in agriculture. It must pay a ground-rent
higher only than it itself would pay, if cultivated. It is only
necessary that it pay more than the same (not better) land would
pay as rent if used only in agriculture.
The rents of wharfage, dock, and harbor room, water-power, and many other
privileges, may be analyzed on similar principles. Take the case, for
example, of a patent or exclusive privilege for the use of a process by
which the cost of production is lessened. If the value of the product
continues to be regulated by what it costs to those who are obliged to
persist in the old process, the patentee will make an extra profit equal
to the advantage which his process possesses over theirs. This extra
profit is essentially similar to rent, and sometimes even assumes the form
of it, the patentee allowing to other producers the use of his privilege
in consideration of an annual payment.
The extra gains which any producer or dealer obtains through superior
talents for business, or superior business arrangements, are very much of
a similar kind. If all his competitors had the same advantages, and used
them, the benefit would be transferred to their customers through the
diminished value of the article; he only retains it for himself because he
is able to bring his commodity to market at a lower cost, while its value
is determined by a higher.(219)
§ 4. _Resume_ of the laws of value of each of the three classes of
commodities.
A general _resume_ of the laws of value, where a free movement of labor
and capital exists, may now be briefly made in the following form:
Exchange value has three conditions, viz.:
1. Utility, or ability to satisfy a desire (U).
2. Difficulty of attainment (D), according to which there are three
classes of commodities.
3. Transferableness.
Of the second condition, there are three classes:
1. Those limited in supply—e.g., ancient pictures or monopolized
articles.
2. Those whose supply is capable of indefinite increase by the use of
labor and capital.
3. Those whose supply is gained at a gradually increasing cost, under the
law of diminishing returns.
Of those limited in supply, their value is regulated by Demand and Supply.
The only limit is U.
Of those whose supply is capable of indefinite increase, their normal and
permanent value is regulated by Cost of Production, and their temporary or
market value is regulated by Demand and Supply, oscillating around Cost of
Production (which consists of the amount of labor and abstinence
required).
Of those whose supply is gained at a gradually increasing cost, their
normal value is regulated by the Cost of Production of that portion of the
whole amount of the whole amount needed, which is brought to market at the
greatest expense, and their market value is regulated by Demand and Supply
(as in class 2).
If there be no free competition between industries, then the value of
those commodities which has been said, in the above classification, to
depend on cost of production, will be governed by the law of Reciprocal
Demand.
Chapter IV. Of Money.
§ 1. The three functions of Money—a Common Denominator of Value, a Medium
of Exchange, a “Standard of Value”.
Having proceeded thus far in ascertaining the general laws of Value,
without introducing the idea of Money (except occasionally for
illustration), it is time that we should now superadd that idea, and
consider in what manner the principles of the mutual interchange of
commodities are affected by the use of what is termed a Medium of
Exchange.
As Professor Jevons(220) has pointed out, money performs three
distinct services, capable of being separated by the mind, and
worthy of separate definition and explanation:
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 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 Zelie, a singer
of the Theatre 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.
A Measure of Value,(224) in the ordinary sense of the word measure, would
mean something by comparison with which we may ascertain what is the value
of any other thing. When we consider, further, that value itself is
relative, and that two things are necessary to constitute it,
independently of the third thing which is to measure it, we may define a
Measure of Value to be something, by comparing with which any two other
things, we may infer their value in relation to one another.
In this sense, any commodity will serve as a measure of value at a given
time and place; since we can always infer the proportion in which things
exchange for one another, when we know the proportion in which each
exchanges for any third thing. To serve as a convenient measure of value
is one of the functions of the commodity selected as a medium of exchange.
It is in that commodity that the values of all other things are habitually
estimated.
But the desideratum sought by political economists is not a measure of the
value of things at the same time and place, but a measure of the value of
the same thing at different times and places: something by comparison with
which it may be known whether any given thing is of greater or less value
now than a century ago, or in this country than in America or China. To
enable the money price of a thing at two different periods to measure the
quantity of things in general which it will exchange for, the same sum of
money must correspond at both periods to the same quantity of things in
general—that is, money must always have the same exchange value, the same
general purchasing power. Now, not only is this not true of money, or of
any other commodity, but we can not even suppose any state of
circumstances in which it would be true.
It being very clear that money, or the precious metals, do not
themselves remain absolutely stable in value for long periods, the
only way in which a “standard of value” can be properly
established is by the proposed “multiple standard of value,”
stated as follows:
“A number of articles in general use—corn, beef, potatoes, wool,
cotton, silk, tea, sugar, coffee, indigo, timber, iron, coal, and
others—shall be taken, in a definite quantity of each, so many
pounds, or bushels, or cords, or yards, to form a standard
required. The value of these articles, in the quantities
specified, and all of standard quality, shall be ascertained
monthly or weekly by Government, and the total sum [in money]
which would then purchase this bill of goods shall be, thereupon,
officially promulgated. Persons may then, if they choose, make
their contracts for future payments in terms of this multiple or
tabular standard.”(225) A, who had borrowed $1,000 of B in 1870
for ten years, would make note of the total money value of all
these articles composing the multiple standard, which we will
suppose is $125 in 1870. Consequently, A would promise to pay B
eight multiple units in ten years (that is, eight times $125, or
$1,000). But, if other things change in value relatively to money
during these ten years, the same sum of money—$1,000—in 1880 will
not return to B the same just amount of purchasing power which he
parted with in 1870. Now, if, in 1880, when his note falls due,
the government list is examined, and it is found that commodities
in general have fallen in value relatively to gold, the multiple
unit will not amount to as much gold as it did in 1870; perhaps
each unit may be rated only at $100. In that case, A is obliged to
pay back but eight multiple units, which costs him only $800 in
money, while B receives from A the same amount of purchasing power
over other commodities which he loaned to him. B had no just claim
to ten units, since the fall of all commodities relatively to gold
was not due to his exertions. On the other hand, if, between 1870
and 1880, prices had risen, _mutatis mutandis_, the eight units
would have cost A more than $1,000 in gold; but he would have been
justly obliged to return the same amount of purchasing power to B
which he received from him.
§ 2. Gold and Silver, why fitted for those purposes.
By a tacit concurrence, almost all nations, at a very early period, fixed
upon certain metals, and especially gold and silver, to serve this
purpose. No other substances unite the necessary qualities in so great a
degree, with so many subordinate advantages. These were the things which
it most pleased every one to possess, and which there was most certainty
of finding others willing to receive in exchange for any kind of produce.
They were among the most imperishable of all substances. They were also
portable, and, containing great value in small bulk, were easily hid; a
consideration of much importance in an age of insecurity. Jewels are
inferior to gold and silver in the quality of divisibility; and are of
very various qualities, not to be accurately discriminated without great
trouble. Gold and silver are eminently divisible, and, when pure, always
of the same quality; and their purity may be ascertained and certified by
a public authority.
Jevons(226) has more fully stated the requisites for a perfect money as—
1. Value.
2. Portability.
3. Indestructibility.
4. Homogeneity.
5. Divisibility.
6. Stability of value.
7. Cognizability.
Accordingly, though furs have been employed as money in some countries,
cattle in others, in Chinese Tartary cubes of tea closely pressed
together, the shells called cowries on the coast of Western Africa, and in
Abyssinia at this day blocks of rock-salt, gold and silver have been
generally preferred by nations which were able to obtain them, either by
industry, commerce, or conquest. To the qualities which originally
recommended them, another came to be added, the importance of which only
unfolded itself by degrees. Of all commodities, they are among the least
influenced by any of the causes which produce fluctuations of value. No
commodity is quite free from such fluctuations. Gold and silver have
sustained, since the beginning of history, one great permanent alteration
of value, from the discovery of the American mines.
In the present age the opening of new sources of supply, so abundant as
the Ural Mountains, California, and Australia, may be the commencement of
another period of decline, on the limits of which it would be useless at
present to speculate. But, on the whole, no commodities are so little
exposed to causes of variation. They fluctuate less than almost any other
things in their cost of production. And, from their durability, the total
quantity in existence is at all times so great in proportion to the annual
supply, that the effect on value even of a change in the cost of
production is not sudden: a very long time being required to diminish
materially the quantity in existence, and even to increase it very greatly
not being a rapid process. Gold and silver, therefore, are more fit than
any other commodity to be the subject of engagements for receiving or
paying a given quantity at some distant period.
Since Mr. Mill wrote, two great changes in the production of the
precious metals have occurred. The discoveries of gold, briefly
referred to by him, have led to an enormous increase of the
existing fund of gold (see chart No. IX, Chap. VI), and a fall in
the value of gold within twenty years after the discoveries,
according to Mr. Jevons’s celebrated study,(227) of from nine to
fifteen per cent. Another change took place, a change in the
value, of silver, in 1876, which has resulted in a permanent fall
of its value since that time (see chart No. X, Chap. VII). Before
that date, silver sold at about 60_d._ per ounce in the central
market of the world, London; and now it remains about 52_d._ per
ounce, although it once fell to 47_d._, in July, 1876. In spite of
Mr. Mill’s expressions of confidence in their stability of
value—although certainly more stable than other commodities—the
events of the last thirty-five years have fully shown that neither
gold nor silver—silver far less than gold—can successfully serve
as a perfect “standard of value” for any considerable length of
time.
When gold and silver had become virtually a medium of exchange, by
becoming the things for which people generally sold, and with which they
generally bought, whatever they had to sell or to buy, the contrivance of
coining obviously suggested itself. By this process the metal was divided
into convenient portions, of any degree of smallness, and bearing a
recognized proportion to one another; and the trouble was saved of
weighing and assaying at every change of possessors—an inconvenience
which, on the occasion of small purchases, would soon have become
insupportable. Governments found it their interest to take the operation
into their own hands, and to interdict all coining by private persons.
§ 3. Money a mere contrivance for facilitating exchanges, which does not
affect the laws of value.
It must be evident, however, that the mere introduction of a particular
mode of exchanging things for one another, by first exchanging a thing for
money, and then exchanging the money for something else, makes no
difference in the essential character of transactions. It is not with
money that things are really purchased. Nobody’s income (except that of
the gold or silver miner) is derived from the precious metals. The
[dollars or cents] which a person receives weekly or yearly are not what
constitutes his income; they are a sort of tickets or orders which he can
present for payment at any shop he pleases, and which entitle him to
receive a certain value of any commodity that he makes choice of. The
farmer pays his laborers and his landlord in these tickets, as the most
convenient plan for himself and them; but their real income is their share
of his corn, cattle, and hay, and it makes no essential difference whether
he distributes it to them directly, or sells it for them and gives them
the price. There can not, 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.
The introduction of money does not interfere with the operation of any of
the Laws of Value laid down in the preceding chapters. The reasons which
make the temporary or market value of things depend on the demand and
supply, and their average and permanent values upon their cost of
production, are as applicable to a money system as to a system of barter.
Things which by barter would exchange for one another will, if sold for
money, sell for an equal amount of it, and so will exchange for one
another still, though the process of exchanging them will consist of two
operations instead of only one. The relations of commodities to one
another remain unaltered by money; the only new relation introduced is
their relation to money itself; how much or how little money they will
exchange for; in other words, how the Exchange Value of money itself is
determined. Money is a commodity, and its value is determined like that of
other commodities, temporarily by demand and supply, permanently and on
the average by cost of production.
Chapter V. Of The Value Of Money, As Dependent On Demand And Supply.
§ 1. Value of Money, an ambiguous expression.
The Value of Money is to appearance an expression as precise, as free from
possibility of misunderstanding, as any in science. The value of a thing
is what it will exchange for; the value of money is what money will
exchange for, the purchasing power of money. If prices are low, money will
buy much of other things, and is of high value; if prices are high, it
will buy little of other things, and is of low value. The value of money
is inversely as general prices; falling as they rise, and rising as they
fall. When 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 called the interest of money, but, by a
grosser perversion of terms, the value of money.
§ 2. The Value of Money depends on its quantity.
The value or purchasing power of money depends, in the first instance, on
demand and supply. But demand and supply, in relation to money, present
themselves in a somewhat different shape from the demand and supply of
other things.
The supply of a commodity means the quantity offered for sale. But it is
not usual to speak of offering money for sale. People are not usually said
to buy or sell money. This, however, is merely an accident of language. In
point of fact, money is bought and sold like other things, whenever other
things are bought and sold _for_ money. Whoever sells corn, or tallow, or
cotton, buys money. Whoever buys bread, or wine, or clothes, sells money
to the dealer in those articles. The money with which people are offering
to buy, is money offered for sale. The supply of money, then, is the
quantity of it which people are wanting to lay out; that is, all the money
they have in their possession, except what they are hoarding, or at least
keeping by them as a reserve for future contingencies. The supply of
money, in short, is all the money in _circulation_ at the time.
The demand for money, again, consists of all the goods offered for sale.
Every seller of goods is a buyer of money, and the goods he brings with
him constitute his demand. The demand for money differs from the demand
for other things in this, that it is limited only by the means of the
purchaser.
In this last statement Mr. Mill is misled by his former definition
of demand as “quantity demanded.” He has the true idea of demand
in this case regarding money; but the demand for money does not,
as he thinks, differ from the demand for other things, inasmuch
as, in our corrected view of demand for other things (p. 255), it
was found that the demand for other things than money was also
limited by the means of the purchaser.(228)
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 characterizing the phenomena, we speak of the demand and supply of
goods, or the supply and the demand of money. They are equivalent
expressions.
Supposing the money in the hands of individuals to be increased, the wants
and inclinations of the community 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. 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 [dollars and cents] 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.
It is to be remarked that this ratio would be precisely that in which the
quantity of money had been increased. If the whole money in circulation
was doubled, prices would be doubled. If it was only increased one fourth,
prices would rise one fourth. There would be one fourth more money, all of
which would be used to purchase goods of some description. When there had
been time for the increased supply of money to reach all markets, or
(according to the conventional metaphor) to permeate all the channels of
circulation, all prices would have risen one fourth. But the general rise
of price is independent of this diffusing and equalizing process. Even if
some prices were raised more, and others less, the average rise would be
one fourth. This is a necessary consequence of the fact that a fourth more
money would have been given for only the same quantity of goods. _General_
prices, therefore, would in any case be a fourth higher.
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. This, it must be
observed, is a property peculiar to money. We did not find it to be true
of commodities generally, that every diminution of supply raised the value
exactly in proportion to the deficiency, or that every increase lowered it
in the precise ratio of the excess. Some things are usually affected in a
greater ratio than that of the excess or deficiency, others usually in a
less; because, in ordinary cases of demand, the desire, being for the
thing itself, may be stronger or weaker; and the amount of what people are
willing to expend on it, being in any case a limited quantity, may be
affected in very unequal degrees by difficulty or facility of attainment.
But in the case of money, which is desired as the means of universal
purchase, the demand consists of everything which people have to sell; and
the only limit to what they are willing to give, is the limit set by their
having nothing more to offer. The whole of the goods being in any case
exchanged for the whole of the money which comes into the market to be
laid out, they will sell for less or more of it, exactly according as less
or more is brought.
§ 3. —Together with the Rapidity of Circulation.
It might be supposed that there is always in circulation in a country a
quantity of money equal in value to the whole of the goods then and there
on sale. But this would be a complete misapprehension. The money laid out
is equal in value to the goods it purchases; but the quantity of money
laid out is not the same thing with the quantity in circulation. As the
money passes from hand to hand, the same piece of money is laid out many
times before all the things on sale at one time are purchased and finally
removed from the market; and each pound or dollar must be counted for as
many pounds or dollars as the number of times it changes hands in order to
effect this object.
If we assume the quantity of goods on sale, and the number of times those
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 on 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.
This may be expressed in mathematical language, where V is the
value of money, Q is the quantity in circulation, and R the number
expressing the rapidity of circulation, as follows:
V = 1 / (Q × R).
The phrase, rapidity of circulation, requires some comment. It must not be
understood to mean the number of purchases made by each piece of money in
a given time. Time is not the thing to be considered. The state of society
may be such that each piece of money hardly performs more than one
purchase in a year; but if this arises from the small number of
transactions—from the small amount of business done, the want of activity
in traffic, or because what traffic there is mostly takes place by
barter—it constitutes no reason why prices should be lower, or the value
of money higher. The essential point is, not how often the same money
changes hands in a given time, but how often it changes hands in order to
perform a given amount of traffic. We must compare the number of purchases
made by the money in a given time, not with the time itself, but with the
goods sold in that same time. If each piece of money changes hands on an
average ten times while goods are sold to the value of a million sterling,
it is evident that the money required to circulate those goods is
￡100,000. And, conversely, if the money in circulation is ￡100,000, and
each piece changes hands, by the purchase of goods, ten times in a month,
the sales of goods for money which take place every month must amount, on
the average, to ￡1,000,000. [The essential point to be considered is] the
average number of purchases made by each piece in order to affect a given
pecuniary amount of transactions.
“There is no doubt that the rapidity of circulation varies very
much between one country and another. A thrifty people with slight
banking facilities, like the French, Swiss, Belgians, and Dutch,
hoard coin much more than an improvident people like the English,
or even a careful people, with a perfect banking system, like the
Scotch. Many circumstances, too, affect the rapidity of
circulation. Railways and rapid steamboats enable coin and bullion
to be more swiftly remitted than of old; telegraphs prevent its
needless removal, and the acceleration of the mails has a like
effect.” “So different are the commercial habits of different
peoples, that there evidently exists no proportion whatever
between the amount of currency in a country and the aggregate of
the exchanges which can be effected by it.”(229) |
|
댓글 없음:
댓글 쓰기