THEORY OF MONEY

Essay on Money I

As a Medium of Commerce;
With Remarks on the Advantages and Disadvantages
of Paper Admitted into General Circulation.

by John Witherspoon

From every channel of public intelligence we learn that there is a disposition, in many of the legislatures of this country, to emit bills of credit by authority of government, and to make them in some measure at least, or in some cases, a legal tender for debts already contracted. This is a matter of great delicacy and danger.

It has occasioned a controversial discussion of the subject in pamphlets and periodicals. A few plausible things have been published in defence of the measure. Many shrewd and sensible things have been offered against it, but even these have not been so satisfying as they might have been. Some of the pieces have been verbose, others have been full of witticisms which have no great tendency to convince, and some have been mingled with party politics of various states. Perhaps these different ways of writing may be very proper for several classes of readers, and have a good effect; but there are certainly others who would require a different treatment, because their mistakes are owing not to deceitful intentions, but to erroneous judgment.

This has given me a strong desire to try what can be done with the subject by dispassionate reasoning. By this I mean, trying to carry the matter back to its first principles, to explain them in so simple a manner, that the unlearned may understand them; and then deduce the practical consequences with the general theory full in view.

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What gave rise to money, its nature and use -- Barter

It is impossible to reach my purpose, without saying many things which have been well said by others; but this must be forgiven me; because I mean to lay the whole system before the reader, and every part in its proper order and connection. Let us then begin by considering what gave rise to money, and what is its nature and use?

If there were but one man in the earth, he would be obliged to prepare a hut for his habitation, to dig roots for his sustenance, to provide skins or fig-leaves for his covering, etc. In short, to do every thing for himself. If but one or two more joined with him, it would soon be found that one of them would be more skillful in one sort of work, and another in a different; so that common interest would direct them, each to apply his industry to what he could do best; to communicate the surplus of what he needed himself of that sort of work to the others, and to receive of their surplus in return.

This shows us indeed that barter constitutes the essence of commerce. As society increases, the partition of employment is greatly diversified; but still the fruits of well directed industry, or the things necessary and useful in life, are what can be called wealth.


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First necessity: a standard of computation

In establishing a mutual exchange of useful things, the first thing necessary, is a standard of computation, or common measure, by which to estimate the value of the commodities that may be offered to sale, or may be desired by purchasers. Without this it is easy to see that the barter of commodities is liable to very great difficulties, and very great errors. This standard of common measure must be something that is well known to both parties, and of general or common use.

As the first attempts on any thing are generally rude and imperfect; so I think it appears from the monuments of remote antiquity, that in the early stages of society, cattle were the first things made use of as a standard. (1)

But it would soon appear that this was a most inaccurate measure; because one ox might be as good as two, from size, fatness, or circumstances. therefore in place of this succeeded measures both of dry and liquid, that is, corn, wine, and oil. The first or these was of all others the most proper standard, because universally necessary, and liable to little variation. Men, upon average, would probably eat nearly the same quantity in the most distant ages and countries.

It seems to me that this circumstance of a standard of computation being necessary in commerce, and the first thing necessary, has been in a great measure overlooked by most writers on money, or rather it (money) has been confused with the standard value of the thing, though essentially different from it; and the equivocal use of the terms has occasioned great confusion.

I must however observe, not only that this must necessarily be understood, but that if we confine ourselves to a standard of comparison only, some known commodity, as measured grain, is better, and more intelligible and unalterable than any money whatever, that either has been or will be made. The great alteration in the value of gold and silver is known to every person who has but dipped into history; and indeed is known to many, seen by memory, in this country, since its first settlement.(2)


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Some sign or signs must be agreed upon

But after a standard of computation had been agreed upon, in commerce even of the most moderate extent, something farther would be absolutely necessary. The actual and immediate barter of commodities would in few instances take place. A man might have the thing that I wanted to purchase, but he might not need or desire what I was willing to give for it. Another might want what I had to spare, but not have what I wanted to purchase with it. Besides, bulky or perishable commodities could not be carried about at an uncertainty, or with safety.

Therefore, it became very early necessary, that there should be some sign or signs agreed upon, which should represent the absent commodities, or rather should represent the standard of computation, in all its divisions and multiplications. These signs must be such as could easily be carried about, and therefore could be readily applied to every kind of transaction, which were connected with the commutation of property.


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Nature and meaning of these signs

Let us examine the nature and meaning of these signs more particularly. They are of the nature of a tally, that is to say, they are intended to mark and ascertain a fact. Now the fact is that the person who can show those signs, having purchased them by his goods or industry, is entitled to receive from somebody a certain value, or to a certain amount, which they specify, of the standard of comparison. They have always a reference to the standard of computation, and at last, by that known reference, the distinction between them and the standard of comparison is lost, and they become a secondary standard of computation themselves.

Thus a piece is intended at first to be the value of a measure of grain; but at last men come to make their bargain by the number of pieces instead of the thing signified. Thus also, sometimes at least, an ideal measure, generated by the other two, comes to be the standard of computation; as in England, the pound sterling is the money unit, though there be no coin precisely corresponding to it. This is sufficient to explain the relation of the sign to the standard of computation.


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The sign the nature of a promissory note

I have said above, that the person possessing the sign is entitled to receive a certain value from somebody. The reason for this is, because his debtor is not the same in every state of things. If we consider this sign as given from one individual to another, it is of the nature of a promissory note, and is a confession of having received of much property. Probably there were often such signs or tokens given in the infancy of society; and it would then signify, that if the seller were to come again, at some later time, and find the buyer in possession of goods that he wanted he would be entitled to receive the amount of the sign or token that had been given to him.

But the convenience of using signs is so great, that it would immediately occasion their being used by general consent, expressed or implied; and at last, the matter would be taken under the direction of the ruling part of the community. In both cases, but especially in the last, the society becomes bound to the person who receives the signs for his goods or industry. I will afterwards show, that this was not the first but the last step taken in the use of signs and give the reasons for it, but it is proper to mention it now, when we are considering the nature and use of signs in that single view.


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Signs facilitate commerce

Let it be observed here that, as it was before said, if we aim at no more than a standard of computation some commodities are not only as good but better than any money, so if we confine ourselves to a sign only, separate from a standard, many things that might be named are not only as good, but far better than either the standard itself, or what we call money; because they are much more easily reckoned, transported and concealed. This appears particularly from the state of signs in modern times, after so much experience and improvement has taken place. For if we can guard sufficiently against the dangers to which they are exposed, signs conceivably facilitate commerce. We can ...

1. put any value we please on an obligation written on a few inches of paper and can
2. send it over the world itself at very little expense, and
3. conceal it so easily that there shall be no danger of its being taken from us.

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All mere signs are deficient

It must have soon appeared that all mere signs are deficient. They depend ultimately on the faith or credit of the persons using or answerable for them. Whether these persons be individuals or the multitude by general custom and implied consent, or even the ruling part of the society, there is very great uncertainty.

Therefore, something farther is necessary to make a complete symbol or medium of general commerce, and that is a pledge or standard of value that may be a security or equivalent for the thing given for it, and at all times be sufficient to purchase a like value of any thing that may be needed by him that holds it. An absent commodity well known, or even an idea well understood, may be a standard of computation and common measure; any thing almost whatever may be a sign, though, since the art of writing has been known, paper is the best, but both are essentially defective; there is lacking a value in the sign, that shall give not only a promise or obligation, but actual possession of property for property.