Illustrations showing money is not primarily valued for itself

If, with these fundamental principles in mind, we survey such facts as are available respecting the monies of the primitive peoples and the diverse types of money used even by modern peoples, we shall find that they have just that one essential characteristic. The precious metals, almost from earliest times, have been used as the materials of ornaments, and so also from almost the earliest times, they have been used as money. The precious metals could always be passed on to the man whose wealth and standing in the community were estimated, as today in some parts of India, by the number and the weight of the silver and gold ornament worn by his wife. An elastic demand in itself creates a safe outlet. Why was tobacco used as money in early colonial Virginia; or furs in some of the northern colonies and in Canada? Or rice in the Carolinas? Why did the New England colonists sometimes use the Indians’ ornamental strings of beads — wampum — as a medium of exchange in certain of their own transactions? Utilizing again our unifying principle, the answer to each of these questions is obvious. Tobacco was the most important Virginia product for export. It was the medium by which English goods, of which the colonists were in sore need, could be obtained. It was the one product for which there was, for the time being, a certain and undisputed market. What more natural than that accounts as between the colonists themselves should be transferred by means of this particular commodity, their best embodiment of purchasing power? And so with furs, obtained by trappers or bought from the Indians, and sold in the export market: they also came to have a local currency as a means of getting other things. They could be passed on from hand to hand with the certainty that the holder for the time being could pass them on again when he so desired. The case of wampum is a little different. There was, of course, no European outlet for it; but it had purchasing power in dealings with the Indians, and it is very likely that, for that reason, some of the colonists were not unwilling to accumulate a stock of it. All of these illustrations serve to make it tolerably clear that money is not primarily a thing that is valued for itself. The value of money is its purchasing power. Just so far as any commodity serves as money, it is because it is wanted, not for personal or permanent use, but for passing on. The material of which money is made may have its own use. This merely makes it all the more certain that money itself may be passed on, that someone may always be found who is willing to take it in exchange for goods or services.

With respect to another problem — the economic functions of money — there has also been unnecessary confusion of thought. Money is an important part of our commercial mechanism. The “functions” of any piece of mechanism are properly determined, not by what we think that particular bit of mechanism ought to do, but by what it actually does. In economics, as in the natural sciences, we shall see farther and see more clearly if we consistently try to avoid the use of loose, vague and general terms, and fix our attention upon concrete facts, upon what actually takes place in this complicated world.