What is Money?

CIVILIZATION began with exchange, and exchange began with barter. Barter means the exchange of things for things, with each transaction complete in itself, leaving no claim or obligation by either trader. Obviously, such transactions require contact of two traders, each of whom has something the other wants. Such contacts are not easy to make, and an escape from this limited exchange method had to be found to permit man to raise his standard of living beyond that of bare necessities. 

The first device resorted to was to adopt, for a criterion of value, some commodity that was in common use. A list of the commodities adopted in this way at various times and places would include salt, hides, grains, cattle, tobacco, metals, and so forth. The trader accepting these found them useful not only to himself, but on account of their general acceptance, he was assured that he could use them to secure desired commodities in exchange. This was the first step in the process of liberating exchange, a process that would culminate with money. A refinement in this important first step came about with the adoption of precious metals such as gold and silver as intermediating commodities. 

This manifested a greater emphasis upon usefulness for exchange rather than for consumption, and marked the final phase of whole barter, or value-for-value exchange, before the dawn of money. Because of the use of precious metals as the last and highest phase of whole barter exchange, the next step in the direction and harbinger of money was the introduction of a promise to deliver these metals. The belief persists to this day that money, to be sound, must promise the delivery of gold or silver. The essential quality of money, however, is its promise to deliver value in any commodity at the choice of the holder. But in spite of the specification of a given commodity stipulated in the promise, the promise came closer to being money than anything previous because it involved a time interval between the first transaction and the final completion of the exchange, when value has been received on both sides. It introduced also the element of faith. The need for money has always been far in advance of the implements available for utilizing it.

 Because the need was and always is so urgent, the trader has accepted anything that has offered the prospect of effecting non-direct barter exchange. In doing so, he has exposed himself to the devices of the charlatan as well as the sincere reformer. He has had no rationale to guide him. The only logic he has been able to employ has been to choose the better media when two or more have been available. Why has man consistently endeavored to escape simple barter when, because of its very simplicity, it has offered security against deception while monetary systems have invariably betrayed him? Why must man have money? It is neither a tool of production nor a product. It is neither food, raiment, housing nor adornment. It has no value, yet it is indispensable to modern man. Why indispensable? Because man's wealth producing potentialities through specialization of labor cannot be exploited unless the exchange of goods and services can be split in two parts, with one trader receiving value and the other receiving only the prospect of value. 

Therefore what man has been striving for is the opportunity to acquire without coincidentally surrendering value. If he must complete the exchange in one transaction, he s reduced to simple barter, and simple barter requires him to find someone who has what he wants and wants what he has. To do this requires so much time and effort that he loses what he might otherwise gain from the specialization of labor. Visualize two persons facing each other, one holding a value that the other desires, and the other holding nothing of value. How can they do business? Obviously the emptyhanded, would-be trader must have some means of inducing the possessing trader to transfer the desired value. If he asks what the possessor would like in exchange and promises to deliver this desired commodity at a later time, and if this promise is accepted and the possessor surrenders his value, the promisor has established credit. But the transaction is not a monetary transaction, even though the promisee accepts a written evidence of the promise. Here, then, we should pause to comprehend that money and credit are not synonymous. 

The promisor has not gained the freedom of money, because he must now seek and find and deliver the specific commodity pledged. The barter transaction has been only partly split, by the introduction of the time interval. To invoke the facility of monetary exchange, the would-be trader must deliver requisitionary power upon some unidentified trader or traders who can and will surrender an equivalent value at the holder's option. The utilization of money as the medium of exchange does not mean departure from barter. It is but a method of splitting barter completely in two halves. The acceptor of money gives value therefore but receives only a promise of value, which, when conveyed to a subsequent seller, requisitions his half of the split-barter transaction. Introducing a time element into barter and giving the acceptor the power to requisition his half from any trader and in any commodity, at any time, is what expedites and multiplies exchange, thus releasing more and greater variety of production and hence raising living standards. While money is the liberator of exchange, it is also the vehicle of human trust and confidence. Its substance is the pledge that he who takes will also give. This pledge of faith is the basis of the power to issue money. 

In simple terms, it means that he who would issue money to cover his purchases must be prepared to redeem his pledge by selling. In other words, persons who enter a monetary exchange agree to give and take things in trade, at the market price, on the tender of the monetary instrument from any quarter. Thus every trader relies upon the pledge of the issuer that he will honor his issue on demand. A society accustomed to trade on the basis of its faith in its money is vulnerable to deception as it never was on the whole barter system. It is imperative, therefore, that man master money, so that he can assure the fidelity of the promise implicit in what he accepts as money, and can not only exclude from the issue power all unworthy of it, but can admit to it all of those who are worthy of it——including those now excluded under the existing political monetary system. If money is to fulfill its function as the liberator of exchange, it must be protected from pollution by false issuers, and it must also be free to draw its supply from all worthy sources. The broader its base, the higher can be its apex and the greater its service to mankind.