The cause and effect of money

Front matter

THE CAUSE AND EFFECT OF MONEY.

library

OF The

Chapter I. The Value Of Money

In the ordinary transactions of business money goes from hand to hand measuring out to every one a share of the social energy of the community.

It is not material at this time to inquire into the justness of this distribution, but it is important to understand what money is doing all the time, and what is being measured.

It is value that money is measuring out, and it is value that is being constantly apportioned, and unless we understand the facts in the case, we will fail to master the principles.

There are no facts except natural daily occurrences of sun and rain, wind and weather, day and night, that are more familiar than the facts about money. But strange as it may appear there is scarcely a subject about which there is more dispute than about the functions of money.

It is the familiarity of money that has held hack the truth concerning it, because the most familiar and necessary truths are latest in the order of development.

A writer on Economic subjects has wisely observed that the progress made in unfolding truth has been in proportion to its remoteness from human interests.

We have, in times past, chiefly concerned ourselves with the things that were farthest removed from our immediate welfare and from our life on this earth.

Thousands of years before men began to observe the familiar things around them they were exhausting their intelligence in fruitless controversies about the personal attributes of God and the properties of the human soul.

The dawn of modern science was the awakening of men to truth in familiar things from which the happiness and welfare of the great mass of the people was to be secured.

But the gains and savings and increase in power resulting from the application of science are almost as nothing when compared to the gains we may expect when science is applied to our politics.

One laborer, however humble his occupation, has an intelligence which readily adapts itself to guide modern machinery and convert natural forces into social products. And the power of these natural forces, which we may direct by our common labor, is beyond our power of calculation.

When we think of idle and misplaced labor, therefore, we are apt to overlook the fact that in shutting out labor we cut olf, at the same time, the forces which science calls into existence and which are in many cases at least two hundred-fold greater than the force of labor alone.

In religion, for example, the waste of social force in pulpits, churches and auxiliary expenses is almost incalculable because the work of the church is behind the times and the teaching it seeks to inculcate is too remote from human happiness.

A far away God who concerns Himself with but a few of the people, who are so fortunate as to get where He resides after they are dead, is entirely too far fetched for this age of intelligence and belongs to a time when the well-being of the common people gave the rulers of men no concern.

Thus without counting economic forces there are vast religious forces going to waste that should be exerting their power to uplift and comfort mankind.

Millions of people fail to find, in the churches, any outlet or support for the higher promptings of the soul, and other millions mistake the form and ceremony of the church for the divine essence of religion.

Only within a few years has the religious world began to stir and to realize that is was connected in some way with the economic world, and that God is nearer to us than we are in the habit of believing and somehow our daily life and happiness are in His care.

It is becoming clearer every day that the unfortunate in the world are the result of our own ignorance and of man’s inhumanity to man, and the church can no longer afford to abandon them to an antideluvian Devil and withhold from them the support and fellowship of religion.

The whole civilized world is a money getting world, to he without money is to he outside the world and beyond the pale of -- civilization, and to possess an abundance of money is to possess all the power that the civilization of the time affords.

If you were to select the greatest good in the world and were to he guided in that selection by the one thing above all others which people are most anxious to secure, you would select money at once.

And your belief in the goodness of money would be strengthened as you beheld the struggle on one side to get plenty of it and the distress and suffering on the other side caused by the want of it.

But we do not seek money for its own sake but for the power it gives by having other people furnish us with the results of social energy.

We want money because we want power and the value of money is the quantity of power it contains.

The value of money is therefore a definite quantity of social energy, and the value of money, differs from the value of everything else, as wheat or coal, because such value is free to be exchanged at any time for an equal value of anything else, while the value of wheat is not free but is contained in the wheat, and before we may exchange wheat for anything else we must first exchange it for the free value of money.

Money-value being a force, or form of energy, it is subject to the same laws that control other forces and thus money has limits beyond which its power stops although these limits are much wider and more diverse than any other single force, not excepting life itself.

But money is not always conceded to be a blessing, and is also known as the root of all evil, because we find the nearer we approach the fullness of our desire for money the farther away flies the happiness and the good we dreamed we might buy with it.

It is the verdict of all people who are most generously wealthy that it is a most difficult undertaking to give away money.

It is the opinion, indeed, of the men who make charity an especial study, that bounty and alms giving in any form is harmful.

It is certain that money given away to relieve distress can accomplish nothing beyond the relief of the persons directly concerned, and its secondary effects are admitedly bad not only on the giver and receiver but on society at large.

We should learn from this that another Hand from ours is playing some part in the use we make of money and that the individual we regard as all important is scarcely of any importance, a step only in the ladder of progress.

The man whom nature is seeking to introduce into the world and to bring into society is the man of the future, the man of perfect happiness and of complete intelligence, who shall be an image of God.

This failure of charity and benevolence to restore a certain degree of harmony in society is caused by a fierce antagonism from Nature v/ho refuses to have her own plans for the diffusion of wealth set aside in favor of some cheap human makeshift.

Nature refuses to allow any charitable or benevolent compromise with her, plan for the circulation of money, and if we desire to secure the benefits of a just and equal distribution of wealth we must learn the laws of its natural distribution and cease to interfere with these laws.

This becomes clear as we begin to realize the laws of value by virtue of which production and distribution takes place and by virtue of which the functions of money are regulated and controlled.

What we should see now quite clearly is that every civilized man is required to first get money before he is permitted to satisfy his desires, and we ought to realize that nature has a purpose in putting the value of money between a man and his life in society.

Surely it is not for nothing that all over the civilized world men are required to get money first and are not permitted to produce and exchange directly.

This intervention of the value of money discloses to us the plan of Nature and her method of securing the co-operation of men in carrying out that plan.

Granting that civilization means progress and progress means development toward some end and for some purpose, then we must admit that Nature is required to invent some method by which our labor, and other activities, shall be directed in the way we shall go in order to progress, because we ourselves never know of what progress consists.

Thus by placing the value of money between men and the satisfaction of their desires, Nature solves her own problem and is able to compel men to work as she directs by holding in her hands the value of money which we must have in order to live.

An individual who desires a dwelling to be built, according to some plan, is able to secure the required labor and material because he controls 'the value, in the form of money, which other people require who build his house.

So Nature, in the whole world, holds value in her hands and rewards the worker as she wishes the work done and withholds value where she would discourage development.

In order to control and direct the activities of men it is a law of Nature that they must secure value first before they are allowed to think about themselves, and in this way the good for all gets in advance^ of the good for any.

The laws of value determine what kind of activity, and how much of every kind, is to be expended in any direction at any time, except as we may interfere with our own laws by making some property valuable that Nature would have without value.

It is the circulation of money that brings these laws of value before our eyes and enables us to see the Hand that guides us and apportions social power and enjoyment.

Getting money should be regarded as a means to some end, although that end may be so far removed from our own times as to be lost in the distance, and be out of reach of our intelligence.

Having much money may be compared to having an endless supply of meals and clothes on hand, for however essential a needful supply may be, an over supply can only become a burden.

The range of action for money is limited on either side. Beyond society among savages money is not required and a man may live a life of a low social order with little or no money.

But passing from savage into civilized life we find the necessity for money increasing as the conveniences of civilization multiply, and again we come suddenly to the upper limit.

After money supplies us with the advantages of a civilized life its functions suddenly cease and the higher life of thought is beyond its control.

We need to learn that the primary purpose of money is not for the selfish satisfaction of our own appetites hut it has an office of its own in the body politic and the satisfaction we get from money must ever be secondary to its higher uses.

If we desire to secure for ourselves our proper share in the circulation of money we are required by I^ature to understand this greater purpose of money, and only when we adjust our human laws to the natural laws of value may we expect the money we each receive to be a measure of the part we each perform in the greater work of civilization.

The fond parent looks to a profession, or a trade, for his child to enable it to fill a position in society and to earn the money required.

There is something in the way, however, which seriously interferes with all such plans — professions seem to be over-crowded, and wages are much too low to sustain a decent social position in most of the trades.

The economic condition of society as a whole is now confronting the parent and reacting on him when he seeks to provide a place for his children, and this social condition has to do with that greater use of money which should always have precedence over individual rights in property.

It is not too much to say that a law of God commands us to understand the money question and it is a crime to educate children to seek only money and applaud men whose life is a struggle for money for themselves alone.

It is the height of folly to allow the specter of vested rights to blind our eyes to the individual greed that would hold the mass of mankind in slavish subjection.

We have been weaving a net of private property that is now fast entangling our feet and preventing all social progress.

It is well to bear in mind that no question is ever settled until it is settled right, and also to remember that the question of right, in social affairs, is not a question of belief but a scientific question of fact.

Whatever opinion the reader may hold he must remember that it is not enough to believe that he is right, but it is necessary to know that he is right, and from a standpoint of science he may know this as certainly as any mathematical proposition may be known.

In the money question we are dealing with effect and cause, and the cause becomes a force for the reason that it is invariably followed by its effects and gives us a basis of science.

The cause of money is the value of it, and this value obeys certain laws which money follows as a needle follows its magnet.

. Money carries value among the members of society and this value is being maintained or generated every day by the activity of every contributing force in society, and the circulation of money is determined by laws which regulate and control the flow and circulation of this value.

The utmost we may ever accomplish by our laws is to stop all interference with the circulation and generation of value or with the activities upon which the supply of value depends.

The claim made for this work, in comparison with thousands of other writings on the same subject, arises wholly from the new idea and treatment of value in its relation to money.

The difference between the prevailing theories and the new standpoint is well illustrated as follows:

W. Stanley J evons in his work, ‘^^Money and the Mechanims of Exchange,^^ says Value expresses ratio in exchange,^^ whatever that may be supposed to mean. Continuing he says —

^^We must now direct our attention upon the fact that in every act of exchange a definite quantity of one substance is exchanged for a definite quantity of another.’^

^^The things bartered may be the most various in character and may be variously measured.^^

^^The quantities to be measured may be expressed in terms of space, time, mass, force, energy, heat or any other physical units.^^

“Yet each exchange will consist in giving so many units of one thing for so many units of another, each measured in its appropriate way.^^

“Every act of exchange thus presents itself to us in the form of a ratio between numbers. The word value is commonly used “For our purpose at least the use of the word value is only an indirect method of expressing a ratio of numbers.^^

The entire failure of the prevailing theories of money is expressed in the above quotation which will be made plain upon slight examination.

Mr. Jevons uses the illustration that if copper exchanges weight for weight for ten times as much iron then the value of copper is ten times the value of iron.

Now plainly this is getting the cart before the horse because the word ‘‘if’ is at the wrong place. If the value of copper is ten times the value of iron then it will take ten times as much iron in weight to equal the value of a given weight of copper.

In plain words we never, as a matter of fact, obtain the value of anything by obtaining a ratio of numbers first, but having the value of any number of articles the ratio, or relation between them, is simple and obvious.

Having the value of iron and of copper the relation of weight to value solves itself and is simple, and ratio of numbers is the effect of value and is not the cause, as Mr. Jevons attempts to explain.

In the same work Mr. Jevons uses an illustration which effectively dissipates the idea that value is a ratio of numbers.

In speaking of the difficulties of barter which is the difficulty of establishing a ratio of numbers he says: “In a state of barter the price current list would he a complicated document for each commodity would have to be quoted in terms of every other commodity. Between 100 articles there must exist 4950 possible ratios of exchange and these ratios must be carefully adjusted so as to be consistent with each other.”

‘^^All such trouble is avoided if one commodity is chosen and its ratio of exchange with each other commodity be quoted.”

Here is a manifest contradiction because barter is not abolished by choosing one commodity as a measure — what is done to abolish complicated ratios is the development of one commodity as a money.

It is self-evident, in the ease of the 100 articles referred to, that if value could be eliminated each commodity would have 4950 prices.

However the absurdity of this number theory of exchange will become plain when we study the principles of measurement for a moment.

What is it that actually happens in every exchange in contrast to what Mr. Jevons assumes to take place. A commodity to be exchanged in his list of 100 must first be exchanged for its value in money and then this value can be exchanged for its equal value in anything else.

This is the actual fact and what does this fact signify ? Therc^ can he but one conclusion, namely, that everything exchanged has a common origin, which may he expressed in terms of value.

Let us now return to where Prof. Jevons says, ^^The quantity to he measured may he expressed in terms of space, time, mass, force, energy, heat or any other physical unit.”

One thing is now a scientific certainty, namely, that exchange between such various dissimilar factors can never he accomplished except each factor can be reduced to some term which is common to them all.

What factor is it that is common to everything that is exchanged anywhere in the civilized world?

Manifestly it is value, hut value, you may say, fails to convey any idea to the mind.

But this is only true of value in the abstract as it is true of any force in the abstract, hut in relation to the things exchanged, value conveys a definite idea of social force.

Manifestly everything exchanged in society can be reduced to common terms of social energy.

The total activity of any community for any given time results in a definite number of products which have consumed the energy.

Therefore any product must be reduced to terms of this social energy before it can be compared and exchanged.

But you may exclaim that this is not one force but is such a complication of forces that the difficulty increases instead of diminishes.

Not so, however, because Nature comes to our relief and resolves all these forces into a single force, which equals them in their social energy, and we have given this force the name of value.

The value of property of every description in any community is always equal to the social energy of all the forces engaged ir that community. This value rises as social energy rises or falls with the decline of social energy, and each product, or form of property, has consumed a part of this total social energy which its own value should express.

Hence we get a ratio which is in fact a ratio and not a mere collection of words.

The value of anything is the value of a part in ratio to the whole and this is what a ratio must express — a part to the whole.

The value of any commodity expresses that part of the total social energy engaged or contained in the commodity, and the commodity expresses its own part of the total product.

This is so evidently the true explanation of exchange that extended comment must become a mere superfluity of phrases.

Bearing in mind that value is cause and money a peculiar effect of that cause, it will be clear that a knowledge of the functions of money must be based upon a knowledge of the circulation of value.

The persistence of the need for money has given rise to two theories of its functions that are the opposite of each other — one theory holding that the amount of money in circulation is everything and seeks to increase the quantity of money, while the other theory contends that money is non-essential and would abolish its use altogether.

The writers who would increase the amount of money in circulation see one truth clearly, namely, that money has become vitally essential to the activity and welfare of society.

In arguing therefore, that the activity of society depends upon the circulation of money they are right or wrong, depending on whether they mean that we depend on money in getting our share of the value which money is the means of distributing, o whether they mean that money itself is the cause of this circulation of value instead of being but the effect of it.

What they fail to see is that this great body politic acts like an immense machine which is generating value all the time out of the working forces of society, and the continuance of activity in society requires that this value shall be continuously and equitably distributed, and money only acts as a conductor which is charged with value.

This generation of value by the combination of forces may be fitly compared to a constant supply of electric force at a central station which is being carried out as fast as it is generated along paths and conductors so designed as to carry the proper supply to each part, and these conductors, dividing and becoming smaller

IS as they spread oat are designed to deliver valae in such quantities as will secure the work of every kind which society wishes to have done.

In this illustration money would take the place of copper which carries the electric current, money being charged with value, as a copper conductor is charged with electricity, and money delivers up value instantly at every exchange and takes up a new supply of value at once to deliver at the next exchange.

It would be as foolish to charge some fault in the generating machinery to the copper conductors as it is to charge some failure in our central society to a scarcity of money.

Just as a copper wire is a better conductor of electricity than iron by about 6% to 1, so also, is some money a better conductor of value than other money, but there is no doubt that the money of the world is able to conduct all the value with which it is supplied vdthout much loss, and the fault is not in money but in some interference with value.

It is on account of a failure to distinguish cause from effect—- to distinguish value from the medium conducting value, that has led the world into so many disastrous experiments in financial legislation.

It is comparatively easy in these days of paper money for an nation to increase the quantity of its money, but to keep it of the same value is another matter, and the statesman has never appeared who could coin money at will and maintain its value.

The reason we can not both issue and regulate the value of money, is because Nature herself determines how much value she will permit any given quantity of money to have, and we might legislate forever, on this matter, without changing the value Nature allows money to have.

The amount of value, in any given community, that may attach to money is always a certain ratio of the whole value.

This is to say that in the City of New York, for example, if the total value of all property is equal to three thousand million dollars then the value of the money in circulation will be a certain per cent, of it, say, for instance, twenty per cent., or six hundred million dollars of actual money.

If the supply of money comes faster than other values then profits fall and drives money away, or if the reverse be true then profits rise to attract more money.

In addition to this flow in volume of money there is a more rapid adjustment from changes in the speed of circulation.

As changes in business activity call for greater or less amounts of money in short periods of time the want is met by a rise or fall in the speed of circulation.

This fixity in the value of money has always prevented interference by legislation and has brought all schemes of government finance to grief.

If we will take the United States as our example we may easily illustrate how this stability in the value of money makes itself felt.

Suppose we call the value of all property in the United States equal to eighty billion dollars and the value of the money that will circulate as twenty per cent, of this amount, or sixteen hundred million dollars.

Let us suppose that this amount gives us a per capita circulation of twenty dollars and it is proposed to increase this to forty dollars, and instead of sixteen hundred millions to have thirtytwo hundred million dollars worth of money.

In this event, if Nature did not interfere, the relation of the value of money to other values would be changed from twenty per cent, of the total to forty per cent., and the value of money would be doubled.

It is well to remark here that when the advocates of much money talk about its value they refer to the unit of value, the dollar, but we are discussing the value of money as a whole.

The effect of thus doubling the volume of money would be to cause a rapid rise in prices of all kinds until the true relation between the value of money and all other values was restored to twenty per cent.

Let us suppose, however, that some scheme is devised whereby this rise in prices is prevented and the value of money is doubled.

In this event you would find that Nature had another plan to defeat ours, and the whole speed of circulation would fall so low as to require twice the quantity of money to do the work that was done before.

The reason for this will become clear as we see that money measures out value to the people, and distributes wealth among them, and it is not the quantity of money that is of so much concern as it is the quantity of value that is free to be distributed.

A yard stick, given time enough, may measure an indefinite number of yards of cloth by being used over and over again, so money measures value by being used over and over again, and just as a yard stick goes out of business when the cloth has all been measured, so money is forced out of business when value is taken out of circulation to make a few rich instead of being distributed among the many.

If we had the value in circulation with which to endow all the goods we could produce we would have a market that was practically without a limit.

Value, as you must see it then, is a force furnished by Nature through the activities of society, and it is the chief function of money to measure out and distribute this force among the members of society so as to keep up social activities.

The business, or activity, of any civilized country always depends upon the amounts of value received by its members and the use they make of that value.

Among the great mass of workers in the United States it is very likely that the average for men, women and children will not exceed one dollar per day for every day in the year.

If then we were to write up the activity of the United States in dollars we would say that if twenty-five million people received and spent on the average of one dollar each per day, that this sum of twenty-five million dollars per day was the limit of our business power.

If wages were to fall to a standard as low as in China, then the activity would fall in the same way or rather in an increasingratio, while if the sums distributed as wages were to double, then the business activity would more than double.

When this circulation of value among the members of society is interfered with money may be never so plenty but it can find nothing to do, and the unthinking say that a lack of confidence has driven money out of business or else there is not money enough in the country.