Two essays in economics

Contents

I. WEALTH, - - Pages i to 75.

II. AMERICAN MONEY, Pa(;ks 77 to 139.

WEALTH.

I. Definition And Unit

According to the common and general opinion anything is wealth which admits of ownership and has a money value. If a man possesses anything which has no money value; or, in common parlance is not worth a cent, it is not wealth. But if he can sell it, he infers that it is wealth although he may be ignorant of the cause of its value. As for instance, one may gather ginseng and sell it, and therefore regard it as wealthy although he may have no knowledge of its virtues — if indeed it has any. The word wealth as commonly used is the name given to each one of a class of objects, which answer to the above definition separately, and also, to the entire class collectively. As the word is often used it implies abundance, affluence, opulence, riches; but quantities are comparative, and under the definition (Webster) is quoted the expression, I have little wealth to lose (Shaks). Therefore, it is proper to use the word to designate a thing as wealth, or as belonging to a class of objects so called, whether the quantity or value of the article is great or small.

The above definition requires that all objects, which are entitled to be called wealth, must possess a value common to them all, and which is called money value. This definition, although it is directly deducible from the actual use of the word, wealth, demands for its elucidation an explanation of the word value, and especially of money value.

Anything which is either necessary, useful, or agreeable to a man has value to him. It has utility to hira — utility being the state or quality of being useful (Webster). The man has a desire, or want (a demand) and the thing has a capacity to satisfy it (a supply). Therefore, the thing has utility to him; it possesses in itself a capacity to satisfy his desire or serve his purpose, and he furnishes the desire or purpose. Utility, therefore, expresses a relation between a person and an object, or more generally, between a desire or purpose and the capacity to satisfy it. Use value or value in use, are phrases, which, as defined by their inventor (Adam Smith), express or signify the utility of the object or thing referred to. If a thing has utility it has a use value, and vice versa. The two words are synonymous. One expresses the relation objectively and the other subjectively.

In order that utility or use value may exist, there must be a desire or purpose and also the means to satisfy it. Water has no utility to quench thirst unless there is thirst, nor fire to ward off cold unless there is cold. Food has the capacity to appease hunger if it exists — But food has no utility or use value for that purpose if there is no hunger. By chemical analysis a comparison may be made of the nutrition contained indifferent kinds of food. And thereupon it might be said that one kind had more utility for that purpose than another. But although horseflesh may be as nutritious as beef or mutton, yet to those who want or desire the latter, they have a greater use value. In food, and in everything else, the consumer exercises his choice, and the thing which he prefers has the greater use value to him at that time. The intrinsic properties which a thing has or is supposed to have and which enable it to be useful would continue to exist if mankind were extinct, but in such case the thing would have no utility or use value because there would be no wants to satisfy.

It has been said (Cairn es) that, utility has been understood to mean the quality of being suitable for human purposes generally, and the degree of utility to be measured by the importance of the purposes to which the useful commodity ministered; as, that water is more useful than alcohol; coal than a diamond; and iron than gold. It may be true that water is more useful to quench ordinary thirst, or for washing, cooking, irrigation or navigation than alcohol, yet the latter is more useful than water for many important purposes in the arts and in medicine. Coal may be more useful to generate heat than diamonds, and the latter more useful to cut glass, point a mining drill, or for ornaments, than coal. Iron may be more useful for horse shoes and many other purposes than gold; but gold is more useful to plug a decayed tooth and for many other purposes than iron About the comparative importance of many of these uses opinions might differ. But it is obvious that the above meaning loosely given to utility is too indefinite and fails to bring into view the true significance of the word; because "the quality of being suitable for human purposes generally" depends upou the existence, nature, and amount of human wants, as well as upon the capacity to satisfy them.

Since utility and use value depend for their existence upun wants (the demand) and the means to satisfy them (the supply)^ and both of these vary, then it follows, that utility and use value are variable and not constant quantities.

The capacity to be useful may vary.

1. It may be lost in whole or in part, the food may spoil or decay; the air become foul; the water stagnant; the bouquet may wither; the gem become cracked, broken, or lose its lustre; the watch cease to keep good time; and the goods may deteriorate, get out of style and become old stock. The capacity to be useful may not exist in fact, but be only imputed to the object; the patent medicine may not be a panacea in reality; nor the hair restorer a restorer in fact; and the picture or gem maybe bogus.

2. The quality of the article may vary; the cloth may be homespun, shoddy or fine goods. All kinds of articles vary through all degrees of quality.

3. The quantity may vary. The supply maybe scant or the contrary. Crops may be short or over abundant. It is sometimes reported that in remote localities Indiaii corn is, or has been used for fuel. Although the corn had the same nutritive properties and would make as much whiskey, glucoj<e, starch, or food, as if it were ia the greatest demand for these purposes, yet situated where it was, the corn had greater utility to its owners for fuel than for any other purpose. The caj^acity to satisfy a desire or serve a purpose may exist in excess of the desire or purpose which it can satisfy or serve. In such cases the utility of the object becomes reduced in amount as per unit of quantity, because the supply exceeds the demand. If a farmer raises more grain than he can possibly consume, the excess has no utility to him except to sell to others; and if there are no buyers, the farmer may well turn his grain into fuel. Commerce confers or enhances utilities by transferring commodities from one place to another, and thus bringing the supply within the reach of an adequate demand.

The producer receives for liis product, on the average, less than one-half of the price paid for it by the consumer. Those engaged in trade and commerce get at least an equal share. Hence the wealth gained by commerce.

And utilities vary as wants vary.

1 , They vary as between tlie same person and the same thing. A man may be more hungry or thirsty at one time than another. Clothing has greater utility to a man who has none, than if he bad a sufficient supply already ; the surplus quantity would have little utility to him except to sell. Thus a thing may vary in utility in respect of the purpose for which it is wanted. Water has one utility to quench thirst and another for washing or cooking.

2 They vary as between the same person and different things. Either food, clothing, shoes or drink may be more useful to a man at one time than either of the others.

.3. They vary as between the same thing and different persons. One may desire food or drink more than another. A commodity has one use value to the producer, maker, merchant or dealer and another to the consumer. If an article is saleable at a profit, that constitutes its utility to the dealer. If the article thus serves his purpose, it is not material to liim what use value alcohol, tobacco, opium or any other commodity may have to the consumer.

4. They vary as between different persons and different things One may want shoes more than clothing, and another, just the reverse. And all of them may desire money in different degrees more than any other thing.

Many things as goods, chattels, lands, etc., have a use value to many persons in different degrees both as between the things themselves and also as between the several persons. Hence such things which are capable of delivery or transfer, become exchangeable between those persons to whom they have a use value, because of their greater utility to one or more than to others. Such things, therefore, are said to have exchange value.

From the foregoing, it is inferrable that the phrase, use value, isthe proper generic term for value, and that any specific kind must be use value in some modified form or taken in some limited or qualified sense. If, therefore, all kinds of wealth possess a kind of value common to them all and which

WEALTH.

may be called wealth value, then the same is in fact use value qualified or limited in some way. The definition of wealth above given asserts that wealth value is the same as money value; and the proof of it is as follows:

Since wealth may be more or less in quantity, different articles and quantities of wealth admit of comparison with each other as to their amounts. Therefore, if a certain article or quantity of a thing which is in fact wealth be denoted by, d\ and a speci6c article or quantity of some other thing be denoted by w; and the two are brought into comparison and it appears thereby that the two articles have the same kind of value, then it follows that the article or quantity, w, possesses wealth value and is therefore wealth also. The result of such comparison is, that the two articles or quantities, w and r?, are of equal or different amounts in value, which relation can be expressed algebraically by which is the same as to say that the article or quantity w is worth or possesses a wealth value v times as great as the article or quantity d.

And another article or quantity of some other thing denoted by, z, if wealth, gives rise to the relation expressed by and so on, for all other articles or quantities which may be brought into comparison with d and thereby found and proved to be wealth also.

In this manner the article or quantity of wealth, d, furnishes a test whereby all other articles of wealth may be known and identified.

And the article or quantity of wealth, d, also furnishes a unit measure of wealth and wealth value. For if in Eqs. (1) and (2) it be assumed that wj=2=f?. then ^j=yj=l. That is to say, if the specific article or quantity of wealth, d, is taken as the unit of wealth, then its value is unity, or the unit of wealth value.

Now suppose the two articles or quantities of wealth, w and s, were directly compared with each other, and the relation between them were found to be as expressed by then the article or quantity, w, as wealth, is v^ times as great as the article or quantity z. If w. denoted a horse, and z a sheep, and if ^2 = 10 then the relative wealth value between the horse and a sheep would be as one to ten. And an exchange of the horse for the sheep might take place upon that basis. The owner of the horse would consider the ten sheep to be of greater utility or to have greater use value to him than the horse, and the owner of the sheep would consider the horse of greater utility or use value to him than the sheep. Hence the exchange. In this and every similar case, each party measures for himself the utility or use value to him of the article parted with and also of the one received. And in his opinion he has gained, or at least not lost, by the transaction. Experience might prove that both were correct in their opinions, or that one was mistaken, or that both of them were. So that in exchanges, both parties may gain, or one lose, or both.

An exchange made as above fixes a degree of exchange value or ratio of exchange, between the article exchanged. It furnishes a measure of their relative utility, but only, however, as between the parties to the transaction. Their relative utility might be estimated very differently by others; and indeed the respective use value to two other persons, both of the horse and the sheep might be very different from that to the two former ones. The new or second owner of the horse might refuse to exchange him for less than eleven sheep or more; or, a new or second owner of the sheep might refuse to give more than nine sheep for the horse. And the degree of exchange value or ratio of exchange of the horse or sheep would vary with every other or different article of wealth with which either might be exchanged, and also with every change of owners of each.

Although some one might assert that water is more useful than alcohol; coal, than adiamond; and iron, than gold; yet in an exchange, the bystanders have no part, although they may volunteer their opinions. The parties to the exchange measure the utilities involved for themselves. And each of them may decide that for equal weights or quantities, alcohol is more useful than water, diamonds than coal, and gold than iron; at least, to them in their then condition and circumstances.

It seems therefore, that those things which have utility to more than one person and are transferable, possess exchange value; and that the degree of exchange value or ratio of exchange existing among them is determined by the exchanges which take place between them.

If the quantity, c?, be eliminated between Eqs. (1) and (2), the result is

Thus, the test and common measure of wealth, c?, furnishes also a medium of exchange between all other articles or quantities of wealth. For in the case above supposed, if the horse had been parted with for 100 t? and the ten sheep acquired for 10 c?each, then the ratio between the horse and sheep is the same as that above supposed to exist in a direct exchange made of them.

Anything which is generally conceded to be wealth and which is in common use as a test and common measure of wealth and as a medium of exchange is called money. Such thing need only to be wealth among those who use it, as ornaments, etc., (Wampum), or it may be gold, silver, copper or other metal. All money is composed of something which is wealth among the people who use it, unless for convenience (small change) or by necessity, force, or fraud, something else is substituted as a representative or token for it.

If money were made out of something which had no value and consisted of mere counters, then it could not be said, that wealth consists of all those things whose value can be measured by money. For if the money had no value, how could it measure value in other things? Clearly not otherwise than inferentially by effecting exchanges between them. Such money would in that manner acquire a utility for that purpose merely by reason of its being a forced currency.

The assertion made by Eq. (1) is that v' is worth v times as much as d. This could not be unless d had value. And the Eqs. (1), (2) and (4) show that the operation of d as a medium of exchange rests logically upon the averments that the value of ic is v times greater than the value of d, and that the value of z is v^ times greater than the value of d. Therefore all mere counters used as money are representative

WEALTH.

of something which is in fact wealth, or if not they are cheats and frauds imposed by force upon an unwilling people.

But if money is made but of something which is itself wealth, and especially out of some uniform and durable material having a great use value to all the world and which remains stable and permanent; as for instance, if the money be made out of gold or silver; then the above proof that w^ealth value is money value is sound and correct. And if the article or quantity, d, were a specific amount by weight of one of the precious metals, then it becomes, as proved by common use and experience, a fair test and unit measure of wealth, and the value of such unit becomes the unit of wealth value. If wealth consists of sundry things possessing utility, or of the utilities themselves, it is obvious that it is measured by measuring its utility or value. Wealth is not measured by measuring its weight, or its superficial or cubic contents. As wealth, gold measures one amount and iron or lead another. As between different quantities of a commodity, all of the same quality, as for instance, grain or cloth, the value would probably increase in proportion to the quantity within certain limits; but not so as to different amounts of the same article, if they all differed in quality. And the precious metals each of which are always uniform in quality when pure, are about the only things whose value increases regularly in proportion to quantity to an unlimited extent. Although wealth may be more or less in quantity, yet its amount does not depend upon area, magnitude or specific gravity; a lump of coal does not measure the same amount as wealth, as a diamond of the same size; and one horse may be worth many times more than another; if fastfT, stronger, younger, more beautiful, or otherwise more desirable than the other. Also amounts of wealth are not measured by measuring capacities to be useful; as for instance, corn so abundant as to be used for fuel; or fruit so abundant as to be left to rot on the ground; or sheep in Australia when nothing was saved except the fleece and tallow; or cattle in South America and elsewhere when nothing was saved except the hides, horns and tallow. And when Sinbad got into the pit or cave of diamonds their capacity to be useful would have figured small to him, if he had not found a means of escape.

It is said in the law (2 Blacks. Com. 446) "A sale or exchange is a transmutation of property from one man to another in consideration of some price or recompense in value; for there is no sale without a recompense; there must be a quid pro quo. If it be a commutation of goods for goods, it is more properly an exchange; but if it be a transferring of goods for money, it is called a sale; which is a method of exchange introduced for the convenience of mankind, by establishing a universal medium, which may be exchanged for all sorts of property; whereas, if goods were only to be exchanged for goods by way of barter, it would be difficult to adjust the respective values, and the carriage would be intolerably cumbersome. All civilized nations adopted therefore very early, the use of money."

In a sale the sum of money paid is called the price for which the thing is sold. Its money or wealth value is thus measured by the number of times such value is greater or less than the value of the money unit. The difference between the price and the money value of an article, is the difference between a sum of money and its value. If the money is of the right kind, a sale is in substance an exchange, in which each party receives full satisfaction. But if the money were mere counters, then the payment of money, although in pointof law it would operate as a satisfaction, in reality only operates as a means to obtain future satisfaction through the redemption of the counters, or by their use in subsequent purchases, provided they were so used in time and before they lost their representative or putative value.

A sale measures the relative utility of the article sold and the price paid for it to the buyer and seller as estimated by each of them for himself. The sale signifies that, the sum of money received has as much or a greater use value to the seller in his opinion than the article sold; and also, that the buyer considers the article bought as of equal or greater use value to him than the price paid. Each party works for his own interest in the transaction; and it is a source of grief to the seller to learn afterwards that he might have sold for more and to the buyer that he might have bought for less. The extreme price which a buyer will pay for an article is a sum of money whose use value to him in his opinion is equal to that of the article bought. And he regards all forestalling, regrating, engrossing and combinations to extract a famine price out of him as unjust and illegal; on the other hand, the lower the price may fall the better it suits him. As to the seller, he will not dispose of an article, unless the use value of the price paid is to him in his opinion, at least equal to that of the article sold. If such article is a surplus product to him, or of no utility to hini except to sell he has a wide margin; but the shoe pinches at any price below its cost to him. If a hatter had on hand a stock of hats he could not use more than a few of them himself; the others are for sale. If everybody chose to wear caps or turbans, the surplus stock of hats would have small utility. But if there are buyers, the higher the price the better it suits the hatter. If there is competition in the business, or for any cause the demand falls off, the stock is liable to remain upon his hands and deteriorate in quality, get out of fashion and lose style and polish. As time progresses, he is ready to dispose of the lot on hand at what he calls a bargain. If his entire sales renumerate him to his satisfaction he continues in the business.

From what has been said already, it must be apparent that wealth value is use value as measured in barter by the exchange, and in sales by the value of the sums of money paid. And, since barter is not now in common use, the general practice among all men is to estimate, measure and compute wealth and its value in terms of the money unit and its value.

Wealth values are ascertained by market prices, of which there are two kinds, wholesale and retail; the latter less fixed and greater, often double the former. And there are different prices both wholesale and retail at different times at the same place, and also at different places at the same time. Any article of wealth measures one amount at one time or at one place and a different amount at another time or at another place, although the quantity and quality of the article may remain the same. As .for instance, a thousand bushels of grain, regarded as wealth, measures one arpount on the farm and another in the market, and also different amounts at either place at different times. The farmer who sells his grain at a railroad station in his locality gets a smaller wholesale price than is paid for the grain in New 'York, Liverpool or other market. And so in like manner as to all other things. And any specific article is likely to measure one amount in one sale and a different amount at a prior or subsequent one.

A market tends to establish continuously one price at one time and place for every article of a specified grade and quality dealt in at that market. One set of dealers represent Supply, i. e. a supply of a commodity and a demand for money; another set represent Demand, i. e., a demand for the commodity and a supply of money. And the market, is composed of buyers and sellers.

The market price is arrived at, by an equation between the demand and supply, both of which are continually affected by a variety of causes, real, speculative or imaginary. And the equation is brought about substantially as follows: The amount of a demand has a relation to the price bid; so also, the amount of the supply to the selling price. Hence if the quantity demanded of an article be denoted by D at the price v^.d per unit of quantity, d being the money unit; then the total cash amount of the demand is D.v^.d. And if the quantity of the same article offered for sale at the price v.d per unit of quantity be denoted by S, then the total cash amount of the supply is S.v.d. Now the quantity demanded varies or tends to vary inversely with the price v'^ .d; and the amount of the supply varies or tends to vary directly with the price v d. And transactions occur when

The total quantity bought and sold is the same and at the same price. At this point any quantity large or small may change hands. If the demand at that price is in excess of the supply it avails nothing; the only way to increase the supply is to bid up the price. Then the additional supply would satisfy the most urgent demand, whereupon it would become less and the price bid would consequently relapse. On the other hand an excess of supply avails nothing after the demand is satisfied unless the price is lowered. . This would excite an additional demand which would reduce the amount of the supply, upon which the price rises and then the demand falls off and the price relapses. Thus the market price continually fluctuates in unstable equilibrium.

Market prices at the leading markets of the world fix approximately all wealth values of the chief or staple commodities for the benefit of all concerned, whether producers, dealers, or consumers. And the wholesale price of an article is often quoted to the fraction of a cent, penny, etc.

If any one brings an article to market this implies that to him it is a surplus product or that it has a less use value to him than its price. He may have made or manufactured it if a producer, or if a dealer he may have bought it previously in order to sell again. In every case it costs him a certain amount in money or in money's worth. Unless the price realized exceeds this, his livelihood is affected, or at the very least his profits. If the article is not wanted at all or is a "drug" in the market, it is in vain for the seller to expatiate upon its capacity to be useful, or upon its cost to him. The buyer considers in connection with it the use value of his money to him, for. that represents his livelihood and his profits made and to be made. If the article is wanted then its price is affected by the quantity of the commodity which is offered for sale and the quantity of money which buyers are ready to invest in it. And a sale takes place.

1. When the seller thinks he cannot obtain more from the the buyer with whom he is dealing, or from any other.

2. When he wants the price more than he wants the article.

3. When the buyer thinks that he cannot buy the article for less from the seller, or any one else.

4. When he wants the article more than he wants the price.

Every sale is a separate transaction, but it is one of many which go to make up what is called the market price, which is an average. The man who sells at the highest price and buys at the lowest is the "smart man," the successful dealer. In a market everyone is on the alert to do the best he can; for success in life or business awaits the final result.

There are not only "sales" but "contracts to sell." A sale occurs where the seller has the article on hand. A contract to sell is where the seller expects to procure the article before the time stipulated for its delivery. As for instance the Government advertises for supplies for the army, navy, etc., to be delivered at certain places at certain times or from time to time, and contractors bid and afterwards, if successful, procure the articles required.