Henry Dunning Macleod.

A dictionary of political economy: biographical, bibliographical ..., Volume 1 online

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nothing to ofifer in exchange, except the different
productions of their respective trades, and the
butcher is already provided with all the bread

and beer which he has immediate occasion for.
No exchange can in this case be made between
them. He cannot be their merchant, nor they
his customers ; and they are all of them less
mutually serviceable to one another. In order
to avoid the inconvenience of such situations,
every prudent man, in every period of society,
after the first establishment of the division of
labor, must naturally have endeavoured to
manage his affairs in such a manner as to have
at all times by him, besides the peculiar produce
of his own industry, a certain quantity of some
one commodity or other, such as he imagined few
people would be likely to refuse in excSiange for
the produce of their industry.**

Smith then mentions sevwal substances which
have been used for this purpose. In B. II. c. ii.
he expresses the same idea more clearly still : —
" If the pension of such a person were paid to
him not m gold, but in a weekly bill for a guinea,
his revenue surely would not so properly consist
in the piece of paper, as in what he could get for
it A guinea may be considered as a bill for a
certain quantity of necessaries and conveniences
upon all the tradesmen in the neighbourhood.
The revenue of the person to whom it is paid
does not so properly consist of the piece of gold,
as in what he can get for it, or in what he can
exchange it for. If it could be exchanged for
nothing, it would, like a bill upon a bankrupt,
be of no more value than the most useless piece
of paper."

Coming down to more recent times, the clear-
seeing mind of Bastiat perceived the same truth.
In his Harmonies Economiquee ; Orgameaiion
NaiureUe^ p. 25, Edit. 1855, he shows how a
young student at Paris receives all sorts of good
things from society, and he asks what service
has the young student done to society in return
for all these things? — ^^ Aucnn; il se prepare k lui
en rendre. Comment done ces millions d'hommes
qui se sont livr^ k un travail positif, efiectif et
productif, lui en out ils abandonn^ les fhdts?
Voici I'explication : c'est que le p^re de cet
^tudiant, qui 6tait avocat, medecin on n^gociant,
avait rendu autrefois des services, — ^peut-Stre k
la soci^t^ chinoise — et en avait retire, non des
services imm^diats, mais des droits k des ser-
vices qu'il pourrait r^clamer dans le temps, dans
le lieu et sous la forme qu'il lui conviendrait.
C*est de ces services lointains et passes que la
soci6t^ s*acqnitte aujourd'hui ; et, chose ^tonnante I
si Ton suivait par la pens^e la marche des trans-
actions infinies qui out dii avoir lieu pour atteindre
le r^sultat, on verrait que chacun a it^ pay6 de
sa peine ; que ces droits ont pass^ de main en
main,tant6t se fractionnant, tantot se groupant
jusqu'& ce que, par la consommation de cet
^tudifmt tout ait 6t6 balance.'*

So also, in his admirable little pamphlet,
Maudit Argenti p« 80, Vol. V., of the same
edition, he says : — " Cest bien le moment d'ana-
lyser la vraie fonction du numeraire abstraction
faite des mines et de rimportation.

*« Yous avez un ^u. Que signifie-t-il en vos
mains ? H y est comme le t^moin et le preuve
que vous avez, k une 6poque quelconque, execute
un travail, dont an lieu de profiter, vous avez
fait jouir la society, en la personne de votre
client. Cet ^cu t^moigne que vous avez rendu
un service k la soci^t^, et de plus, 11 en constate

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la yalenr. H ttooiffne, en ontre, que rons
n*aYe£ pas eocore retire de la soci^t^ an service
riel equivalent, comme c^^tait votre droit. Poor
vons mettre k meme de Texercer, qaand et comme
11 vons plaira, la soci^t^ par ies mains de votre
client, vons a donn4 nne recamutisiance^ un titrey
nnbau de la RipubUquBy xmjetany nn Scu enfin,
qni ne diff^ dee titres Qdnciaires qu*en ce qn*il
porte sa valenr en Ini-mdme, et si vons saves
lire, avec ies jenx de Tesprit ies inscriptions
dont il est charg^ vons dechifirerez distincte-
ment ces mots: ^Rendez an parieur vn service
iquivalent a ceiui qtiU a rendu a la eociSU valenr
reque constaiiey pnmvSe et meeuree par celle qui
est en moi'mhte,

** Maintenant, vons me cMez votre ^cn. On,
c*est k titre gratuit, on c*est k titre ondrenx. 8i
vons me le donnez comme prix d*an service,
void ce ani en r^nlte : votre compte de satis-
factions reelles avec la socidtd se tronve r^ld,
balance et ferm^ Vons Ini avez rendn nn ser-
vice contre nn ^n, vons Ini restitnez maintenant
I'^n contre nn service ; partant qaitte quant k
vons. Pour moi je suis justement dans la posi-
tion oijL vons dtiez tout k Thenre. C*est moi qui
maintenant suis en avance envers la socidte du
service que je viens de lui rendre en votre per-
sonne. C*est moi qui deviens son crdancier de la
valenr du travail que je ne vons ai livrd, et que je
pouvais me consacrer k moi-m^me. (Test done
entre mes mains que doit passer le titre de cette
crdance, le tdmoin et la preuve de la dette sociale.
♦ ♦ ♦ Vons 6tiez creancier de la soci6t6, vons
m*avez substitud k vos droits, et il importe pen k
la socidt^ qui est redevable d*un service, de la
rendre k vons on k moi. Elle s*acqnitte en le
rendant an porteur du titre.**

Hence we see that all these writers, and many
others might have been cited, perceive that the
fimdamental conception of money is that it is a
pledj;e, that when any one has rendered some
service and receives no equivalent at the time,
that he may do so on some future occasion, and
of what kind he pleases. Hence it is plain, that
as he takes it, not for any direct use it can be to
him, but only because he believes he can got
what he wants when he pleases, it is general
Credit, or a Bill of Exchange on the commercial
community. But though such is its fundamental
nature^ the quantity of the substance that must
be given as the equivalent of the debt, will of
course be governed by the universal laws which
regulate the exchangeable relations of all sub-

The necessity of having something to perform
the duty of representing debts that arise from
unequal exchanges, has been felt by all nations
from a very early time. The Hebrews we know
used silver; although there was clearly no money
in the times described by the Homeric poems,
soon afterwards a currency made of copper
skewers came into use throughout Greece, wmch
was superseded by the silver coinage of Pheidon.
In the dialogue named Eryxias, which is attribut-
ed to iEiscMnes Socraticus, it is said that the
JEthiopians used a currency of carved pebbles.
They must have been *^ blameless** indeed if they
could resist so manifest a temptation to forgery.
Throughout the islands in the Eastern Ocean
shells were used. In Thibet, and in some parts
of China to the present day, it is said that little

blocks of compressed tea are used as money.
Smith says that salt is used in Abyssinia ; that
formerly dried cod was used in Newfoundland ;
sugar in some of the West Indian colonies ; and
in his own day, there was a village in Scotland
where nails served the purpose of money. So
late as the middle of the last century, in Virginia,
tobacco at a certain price per pound was legal
money, in which the salaries of ministers and
other public officers were paid. In other of the
Amencan colonies powder and shot ; in Campeachy
logwood ; and among the Indians on the American
continent, belts of wampum served &e purpose
of a currency.

Bnt when we consider the purposes for which
a currency is intended, it is easily seen that no
substance possesses so many advantages as metal.
The use of the currency being to preserve the
record of services rendered for use at any future
time, it is clear that it should be made of some
substance which should not be liable to alter by
time. A money of dried cod would not be likely
to keep very long, nor would it be easily divisible.
One of the first requisites of a currency is that
it should be divisible into very small fragments,
so that its owner should be able to get any small
amount of service at any time he pleases. Taking
these requisites into consideration, it is manifest
there is no substance which combines these quidi-
fications so well as a metal of some descriptioa.
Metal is uniform in its texture, and it can be
divided into any number of fri^ents, each of
which shall be equal in value to another frag-
ment of equal weight, and if required, these
fragments can always be reunited, and form a
whole again of the aggregate value of all its
parts. By this means if we can establish a
relation between the quantity of the metal and
the amount of the debt ; then whatever that
relation be, or whatever quantity of metal be
taken to represent any amount of debt, any
fragment of such metal will always represent a
proportionate amount of the debt

In adopting a metallic currency, tliat metal
which has the greatest value should be selected
as the principal money. The exchangeable values
of the different meta& are settled exactly on the
same principles as the exchangeable values of all
commodities. All metals are heavy and incon-
venient to carry, and if a very abundant one were
selected for the purpose, the quantity which
would be requfred to denote even a moderate
amount of debt, would be a serious inconvenience.
The more rare and valuable the metal, the more
portable and convenient it would be, so that a
man might carry about with him, as it were, a
concentrated essence of power of commanding
services. Of all the metals that were first
discovered gold and silver combined these ad-
vantages in the greatest degree, and from the
earliest antiquity the most civilised nations
appropriated them for that purpose, and Uiey
gradually superseded the inferior metals and
other substances used by different nations, and
their exchangeable values relatively to each other,
as well as to other metals and commodities, was

All these currencies made of material sub-
stances we may properly call natural currencies,
by which we mean, that though they are aU for
the purpose of representing debt, yet the quantity

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of the snbetance which is considered as the equiva-
lent of the debt depends pnrely on the general
lawsofyalae, and varies subject to their influ-
ence. We shall show a little further on that there
are artificial currencies in which the substance
has a value attributed to it bj some agreement
of some sort which it does not bear without that

But although the value of the substance used
for money is determined by the general laws of
value, we must be carefully on our guard against
saying that it has intrinsic value. We have fully
entered into the confusion in Political Economy
which has been caused by this expression under
Value, so that we need not repeat what we have
said there, but nevertheless we make a few re-
marks on it.

It seems almost superfluous to enforce it so
often ; but when an error is spread throughout
the whole science and meets one at every turn, it
requires to be constantly exposed. The value of
a thin^ is simply and solely the thing for which
it can be exchanged ; and, of course, anything has
as niany values as things it can be exchanged
for. When we speak of the value of a thing, we
necessarily speak of its value in something— its
value in clothes, or its value in bread, or its value
in furniture, or any services whatever. How
often does it require to be repeated that it is as
grossly absurd to speak of anything having abso-
lute value as it is to speak of a thing having
absolute distance, and that it is equally irrational
to speak of intrinsic value as of intrinsic distance I
The value of the money is not the labour be-
stowed upon obtaining it, but the food, the
necessaries, and anything else which can be got
in exchange for it. WhUe money will purchase
tea, and wine, and meat, and clothes, and books,
and houseroom, and furniture, and other things,
it faias value, and these things are its values. If
it ceased to command them it would have no
value ; so if placed in a position where it would
command nothing, it would have no value. Thus,
if we took a bag of sovereigns among the Aus-
tralian savages, they would have no value. It
is clear that if there were anything else that
would purchase exactly the same things that
money would, it would be of the same value as

We must also observe this, that though money
is exchangeable for othor things, it does not
represent them. Some eminent writers liad a
curious fan^ that money was the representative
of other things, and that a state was only well
off when it had as much money as was an
equivalent for all other things put together. But
the slightest reflection shews that this is pure
fancy, and quite contrair to the reality. What
we wish to observe is that money is a separate
and independent exchangeable quantity over and
above other quantities of til sorts. It is a sub-
stance which has generid and permanent value in
a country because everyone will give something
for it, and it does not depend for its exchange-
ability upon any particular person.

Now, as we have shewn under Capitai. that
any Economic quantity whatever may be used
as Capital, money of course may be used as Cap-
ital as well as anything else. There are, of course,
different ways of using things so as to give a
profit, but anything which may be used in any

way whatever so as to give a profit may be
capital, so money may be capitai though it gives
a profit in a different way from com or cattle.
Hence we see that Currency may be Capital.

We shall now lay before our readers a method
of viewing the function of money which is
slightly different from the preceding, though by
no means opposed to it, and we shall then shew
why one definition is preferable to the other.
We need hardly remind our readers that the old
fallacy was that money was the only species of
wealth, and that the only true commercial policy
was to heap up as much gold and silver as possi-
ble. Many persons, however, saw the fidlacy of
this notion, but they rushed into the opposite
extreme, and maintained that money was not
wealth at all, but only the representative of
wealth, and therefore it was of no consequence
of what material it was made of. So long as
paper, for instance, they said, was based upon
some material article of value, such as land or
other things, they maintained that it would pre-
serve the same value as specie. This was the
doctrine upon which that theoir was founded
which we have called Lawism, because he had
the opportunity of carrying it out into practice,
and it resulted in the Mississippi catastrophe.
This doctrine was supported with ingenuity by
the Abb^ Terrasson, a member of the Academy
of Inscriptions and Belles Lettres, who was
selected by Law in 1720, to defend his system.
It was to reply to this fallacy that Turgot began
to write. In sections 40-50 of his treatise Svr la
Formation et la IHstrihution des Richesses^ he has
explained extremely well the true nature of
money. He shews that every species of mer-
chandize has a certain value in every other, and
may be used to measure it, and in a certain way
every merchandize might be used as money.
But that some kinds are better than others, and
that the precious metals are better for this pur-
pose than any others, for obvious reasons. He
then shewed that when a purchase is made with
money, the money is not a sien of value, as was
commonly said, but an actmu equivalent for the
thing purchased. He shews also how the use of
money has greatly facilitated the division of
labor. Thus Turgot shewed that money was
simply a species of merchandize which was used
for a particular purpose. Since his day this has
been the most usual way of regarding it. It has
been considered as a species of intermediate mer-
chandize used for the purpose of facilitating
indirect exchanges. Thus M. Joseph Gamier
(EUmeWts dEconomie Politique, Srd, ediL
1856, p, 14^, observes that direct barter ceases
as soon as nations emerse from the infancy of
civilization. In civilized countries such cases
are very rare, and in most, impossible. Thus a
bookseller who has nothing but books, can but
rarely pay his baker or his shoemaker with
books. A certain peculiar species of merchandize
has therefore been devised called money, which
the buyers of books give to the bookseller, and
which he can give again to those who sell to him.
Thus, he says, barter is complicated by an inter-
mediate exchange. This money men have
agreed to make of silver, and of gold ; and in
civilized countries, the shoemaker exchanges his
shoes for their equivalent in money, for the pur-
pose of again exchanging this money for a hat,

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it may be. The operations of the hatter are
similar, and thej may be represented thus : —

The shoemaker
first exchanges his ikoes for numev^
then exchanges the money for a hat;
which is equiyalent to exchanging the shoes for
a hat.

The hatter
first exchanges a hat for money ^
then the money for shoes ;

which reduces the operation to an exchange of a
hat for shoes.

Hence, adopting tliis view of the operation,
we see tliat the exchange lias been resolved into
two sales ; snch being the name of the trans-
action when one and not both of the quantities
exchanged is money. J. B. Say very aptly said
that a sale is half an exchange. It is also what
is c^ed circulation; and money is called the
circulating medium, because it enables commodi-
ties and other things to circulate without an

Now, the two views we have presented of the
nature of money are by no means contradictory ;
and as long as the circulating medium, or pledge
for future services, consisted of a material sub-
stance like specie, it would be not of the least
consequence which definition was adopted. But
it happens tliat In modem times a circulating
medium, (x pledge, of a totally different nature,
and which is not formed of any material sub-
stance whatever, but is a mere promise to pay,
and which is called credilt has come into use, and
so greatly exceeds the quantity of monej, that
the most moderate computations reckon it at at
least ten times the quantity of metallic currency.
Now, as we shall shew that this credit performs
exactly the same functions as money, it is of
course of the same general nature as money.
But it would manifestly be a rather startling
stretch of langnacre to say that credit was an
intermediate mercKandize and an equivalent to

We shall now, therefore, show why the con-
ception of money being a pledge for a future ex-
change, is more fundamental and more general
than that of its being an intermediate mer-

We have ahready observed that the money
which is given to make a balance on an unequal
exchange of services, and to be a pledge that
the owner of it may obtain what he wants when
he pleases, is a separate and independent article
of exchangeable property. It is exchangeable
for other things, but does not represent them.
The quantity of money is manifestly to be counted
cumulatively to other things, although it is of no
sort of use except as being able to purchase
them. Now the debtor need not give a general
pledge like money, if the creditor is willing to
accept one of a different sort.

Supposing that on an unequal exchange taking
place, the debtor owes lOlbs. of tea, then,
mstc^ of f^iving money, he may give his
simple promise to pay lOlbs. of tea, when re-
quired. Now, it is clear that here we have a
pledge to render a future service when required.
And this pledge may be passed from himd to
hand like money among those who choose to take
it. And as it can be exchanged for lOlbs. of tea,

it is manifestly of the vahu of lOlbs. of tea. But
it is not an appropriation of any specific lOlbs.
of tea. It is, therefore, a pledge of the same
nature as money, and a separate and indepen-
dent article of property, just as money is. Now
this species of property is called Credit, because
the owner of this pledge only believes that he
can exchange it for the tea.

Now, as we steadily adhere to the meaning of
Value that it is the thing for which anything can
be exchanged, it manifestly follows that the
value of a pledge or promise to pay anything, is
the thing promised.

The wdue of a pledge or promise to pay £50,
is the £50.

The value of a pledge or promise to give lOlbs.
of tea, is the lOlbs. of tea.

The value of a pledge or promise to cut a man's
hair, is the cutting of the hair.

The vahte of a pledge, or promise to carry a
letter, is the carriage of the letter.

Now, each of these pledges or promises is of
course only of the value of the particular Uiing
specified or promised; and, therefore, each of
them is only particular. And it may also happen
that the person who has engaged to fulfil these
several promises may be* unable to do so, and then
of course the promise loses its value. Therefore,
the value of the promise is precarious as well as
particular, but that does not affect its indepen-
dent existence.

Now, money is manifestly nothing whatever
but an aggregate of all these particular and pre-
carious values. Because it is a pledge that ev^y
one will answer, and consequently if any particu-
lar person fails, there are plenty of others who
will supply his place.

Hence we see that Credit is the name oi a
species of property which has a separate and
independent existence, and is fundamentally of
the same nature as money. It is the representa-
tive of Debt. This credit may be exchanged,
or bought and sold precisely in the same way as
money itself. Hence, manifestly. Money and
Credit together constitute the currency or circu-
lating mediu$ny that is they equally cause commo-
dities to circulate without the necessity of an

Hence we see that the currency or circulating
medium is the name of a certain species St
economic quantities. But as any economic quan-
tity whatever may be used so as to produce a
profit, it follows that the economic quantities
called the currency may be used to produce a
profit, and so they may become capital. How
credit may be used as capital is fully developed
under Csbdit.

The only real difficulties that have caused
perplexity in comprehending the nature of credit,
have arisen from the apparent subtlety that the
promise to pay a thing has an independent and
separate existence from the thing promised. But
the preceding explanations have, we hope^
cleared up any doubt on that point, and any one
who sees that he can buy thii^ as well with a
bank note as with money, can have no doubt
about it. The second difficulty is somewhat
more specious, and has arisen from the Ailse
views of value which have been so prevalent
Every one can see that money has value. Now,
the reason given for that by the followers of

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Smith and Ricardo, is that labor has been
bestowed on prodacing it And when the^ see
that a piece of paper has cost, oomparatively
speaking no labor, they ridicule the notion of its
having value. Bat in the first place the valne of
the money does not consist in the labor it has
cost, but in the things it will buy, and in the
second place, it is not the paper itself which has
the value, but the right residing in the person of
its owner. The paper is merely the evidence of
the right The ngnt is equ^y valid though it
merely exists in a verbal and invisible form, and
is equally transferable from hand toiiand. But
for the sake of convenience, and to avoid disputes,
and to preserve its certainty, the evidence of it is
record^ on paper, which greatly facilitates its
negotiability. And the valne of this right is the
thing promised, just in the same way as the
value of money is the thing purchased.

Should there be any difficulty in seeing this, it
will be further diminished by considering a species
of currency which was formerly issued in enor-
mous quantities by tradesmen, when there was a
scarcity of legal currency. These were tokens,
which were not promises to pay any specific
thing, but a general promise to give out of the
tradesman's general stock anything of a certain
value. Now it is clear that this token was a
separate exchangeable article of property, quite
distinct from any particular goods; and yet it
manifestly represented a debt of the tradesman's,

Online LibraryHenry Dunning MacleodA dictionary of political economy: biographical, bibliographical ..., Volume 1 → online text (page 172 of 180)