THEORY OF MONEY

continued

Essay on Money II

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

by John Witherspoon

Gold and silver answer all three ends

The mentioning of these three distinct ends to be served by the medium of commerce, and illustrating them separately, was not to convey the idea that there were three steps of this kind taken at a distance of time from each other, or that men first continued long to deal in gross barter; and after that invented signs, and were content with them for another period; and at last perfected the plan, by getting signs possessed of real value. On the contrary, it was to show that any thing used as a medium of universal or general commerce, must be able to serve all the three forementioned purposes; and that if there is any production of nature or fabrication of art, that can unite the whole, at least as far as they are capable of being united this must be the great desideratum.

Now it has been found in experience the precious metals, especially those now called by that name, gold and silver, do answer all the three ends in a great degree. It cannot be denied that they have been used for this purpose in fact from the earliest times, and through every nation in the old world; and indeed also in the new, with such exception only as will confirm the principles of the theory. If any man think that this has happened by accident, or through the whim or caprice of mankind, as one would suspect from the language sometimes used in speech and writing he is greatly mistaken. No accident or shim of accident ever was so uniform or so lasting. The truth is, that these metals do possess in a degree superior to every thing else, the qualities necessary for the purposes mentioned above.

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Qualities money should possess

This will appear to any impartial person who will consider with a view to the preceding principles, what qualities a medium of general commerce ought to posses. It ought, then to be (1.)valuable; (2.) rare; (3.) portable; (4.) divisible; (5.) durable. Whoever will examine the matter with attention must perceive that, any one of these qualities being wholly or greatly wanting, the system would be either entirely ruined or remarkably injured. Let us examine the them separately.


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1 Value

Either necessary or remarkably useful or desirable

It must be valuable; that is to say, it must have an intrinsic worth in itself, in substance distinct from the form. By value or intrinsic worth here, must be understood precisely the same thing that gives to every other commodity its commercial value. Do you ask what that is? I answer, its being either necessary or remarkably useful for life in a social state, or at least supposed to be so; and therefore the object of human desire. Without this it could be no more than a bare sign; nor indeed so useful in this view as many other signs. But we want something that must be not only a standard of computation, but a standard of value; and therefore capable of being a pledged and security to the holder for the property that he has exchanged for it.

It is likely some will say, "What is the intrinsic value of gold and silver? They are not wealth; they are but the sign or representative of commodities. Superficial philosophers, and even some men of good understanding, not attending to the nature of currency, have really said so. "What is gold, say some, the value is all in the fancy; you can neither eat nor wear it; it will neither feed, clothe, nor warm you." "Gold", say others, "as to intrinsic value, is not so good as iron, such can be applied to many more useful purposes."

These persons have not attended to the nature of commercial value, which is in a compound ratio of its use. If iron were as rare as gold, it would probably be as valuable, perhaps more so. How many instances are there of such things, though a certain proportion of them is not only valuable, but indispensably necessary to life itself; yet which, from their abundance, have no commercial value at all. Take for examples air and water. People do not bring these to market, because they are in superabundant plenty. But let any circumstances be obtained, and their value immediately rises above all computation. What would one of those who were stifled of the black hole at Calcutta have given to get but near a window for a little air? And what will the crew of a ship at sea, whose water is nearly expended, give for a fresh supply?


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Ductility, durability, and other qualities, make gold and silver exceedingly fit for domestic utensils

Gold and silver have intrinsic value as metals, because from their ductility, durability, and other qualities, they are exceedingly fit for domestic utensils, and many purposes in life. This circumstance was the foundation of their use as a medium of commerce, and was inseparable from it. No clearer proof of this can be adduced, than that in the earliest times, even when used in commerce, they were weighted before they were divided into smaller pieces, and passed in tale. They must surely then have had intrinsic value; for their value was in proportion to their bulk and quality. This circumstance as a sign made them worse, but as a valuable metal made them better. The same thing appears as clearly from the practice of modern times.

Even when they are taken into the management of the rulers of society, and stamped under various denominations, there must be an exact regard to their commercial value. The stamp upon them is the sign, the intrinsic worth of the metal is the value. It is found, and admitted by every nation, that they must give to every piece that value in legal currency that it bears in bullion; and if any do otherwise, there is neither authority not force sufficient to make it pass. (12.5)


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Eminent contrary opinions

The author referred to in the note has given us quotations from three persons of name in the literary world in support of a contrary opinion.

The first is Dr. Franklin, whom he makes to say, "Gold and silver are not intrinsically of equal value with iron; a metal of itself capable of many more beneficial uses to mankind. Their value rests chiefly on the estimation they happen to be in among the generality of nations, and the credit given to the opinion that estimation will continue; otherwise a pound of gold would not be a real equivalent for a bushel of wheat."

The second is Anderson on National Industry, who says, "Money, considered in itself, is of no value; but in many civilized nations, who have found how convenient it is for facilitating the barter or exchange of one commodity for another, it has received an artificial value; or that although all civilized nations, as a token proving that the person who is possessed of it had given something of real value in exchange for it, and is on that account accepted by another in exchange for something that is of real utility and intrinsic worth."

The third is Sir James Stuart, who says, "By money, I understand any commodity which purely in itself is of no material use to man, but which acquires such an estimation from his opinion of it, as to become the universal measure of what is called value, and an adequate equivalent for any thing alienable."

The name of any man however great, will not have much weight with me, when I perceive that in any instance he has mistaken his subject. This I believe has been the case with all the gentlemen just mentioned. There is considerable confusion in the ideas expressed by the last two; but the thing in which they all agree, and for which they are adduced by this author, is, that they seem to dent the intrinsic value of gold and silver, and to impute the estimation in which they are held, to accidental opinion.

Now I must beg leave to observe, as to the comparison to the intrinsic worth of gold and iron, if it were possible to determine whether, of supposition of iron and gold being in equal quantity, the one or the other would be the most valuable, it would not be worth a single straw in the present question; for if iron were the most valuable, it would in that case be the money, and the gold would be but in the next degree. Accidental opinion has nothing to do with it. It arises from the nature of things.

As to a pound of gold not being, as to intrinsic value, equivalent to a bushel of wheat, it might with equal truth be affirmed, that to a man perishing with hunger, a mountain of gold would not be equivalent to half a pound of bread. But is this any argument against the intrinsic commercial value of gold, as it has taken place since the beginning of the world?(14.6)

As to the other two authors, they seem to say, that money is in itself of no value, and of no material use to man. If by money they mean gold and silver, the proposition is directly false; because they are both of material use for the purposes of social life. But what has led them into this error has been their abstraction of the idea, and taking money in the single light of a sign, without considering it as a standard. Then no doubt, even gold, while it continues in this form is of no other use than as a sign of property. But how little is this to the purpose? For it is equally true of every other commodity. A nail, while it continues a nail, is of no other use but joining boards together, or some similar purpose, and can neither be lock nor key; but a quantity of nails, or the iron which they contain, can be easily converted into either the one or the other. So a guinea, while it continues a guinea, is of no use whatever but as an instrument of commerce; but the gold of which a guinea consists, can easily be converted into a ring, or any thing which its quantity will reach. This is what is, with perfect propriety, its intrinsic value.

Continue to Essay on Money III to discover the other qualities that money should possess.

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