Money and the Mechanism of Exchange
By William Stanley Jevons
In preparing this volume, I have attempted to write a descriptive essay on the past and present monetary systems of the world, the materials employed to make money, the regulations under which the coins are struck and issued, the natural laws which govern their circulation, the several modes in which they may be replaced by the use of paper documents, and finally, the method in which the use of money is immensely economized by the cheque and clearing system now being extended and perfected.This is not a book upon the currency question, as that question is so often discussed in England. I have only a little to say about the Bank Charter Act, and upon that, and other mysteries of the money market, I refer my readers to the admirable essay of Mr. Bagehot on
“Lombard Street,” to which this book may perhaps serve as an introduction. [From the Preface]
First Pub. Date
New York: D. Appleton and Co.
Westminster (authorized) edition.
The text of this edition is in the public domain. Picture of William Stanley Jevons: Photogravure after a photograph of W. Stanley Jevons, taken by Maull & Co., London., courtesy Liberty Fund, Inc.
- Chapter I. Barter
- Chapter II. Exchange
- Chapter III. The Functions of Money
- Chapter IV. Early History of Money
- Chapter V. Qualities of the Material of Money
- Chapter VI. The Metals as Money
- Chapter VII. Coins
- Chapter VIII. The Principles of Circulation
- Chapter IX. Systems of Metallic Money
- Chapter X. The English System of Metallic Currency
- Chapter XI. Fractional Currency
- Chapter XII. The Battle of the Standards
- Chapter XIII. Technical Matters Relating to Coinage
- Chapter XIV. International Money
- Chapter XV. The Mechanism of Exchange
- Chapter XVI. Representative Money
- Chapter XVII. The Nature and Varieties of Promissory Notes
- Chapter XVIII. Methods of Regulating a Paper Currency
- Chapter XIX. Credit Documents
- Chapter XX. Book Credit and the Banking System
- Chapter XXI. The Clearing-House System
- Chapter XXII. The Cheque Bank
- Chapter XXIII. Foreign Bills of Exchange
- Chapter XXIV. The Bank of England and the Money Market
- Chapter XXV. A Tabular Standard of Value
- Chapter XXVI. The Quantity of Money Needed by a Nation
Some years since, Mademoiselle Zélie, a singer of the Théâtre Lyrique at Paris, made a professional tour round the world, and gave a concert in the Society Islands. In exchange for an air from
Norma and a few other songs, she was to receive a third part of the receipts. When counted, her share was found to consist of three pigs, twenty-three turkeys, forty-four chickens, five thousand cocoa-nuts, besides considerable quantities of bananas, lemons, and oranges. At the Halle in Paris, as the prima donna remarks in her lively letter, printed by M. Wolowski, this amount of live stock and vegetables might have brought four thousand francs, which would have been good remuneration for five songs. In the Society Islands, however, pieces of money were very scarce; and as Mademoiselle could not consume any considerable portion of the receipts herself, it became necessary in the mean time to feed the pigs and poultry with the fruit.
When Mr. Wallace was travelling in the Malay Archipelago, he seems to have suffered rather from the scarcity than the superabundance of provisions. In his most interesting account of his travels, he tells us that in some of the islands, where there was no proper currency, he could not procure supplies for dinner without a special bargain and much chaffering upon each occasion. If the vendor of fish or other coveted eatables did not meet with the sort of exchange desired, he would pass on, and Mr. Wallace and his party had to go without their dinner. It therefore became very desirable to keep on hand a supply of articles, such as knives, pieces of cloth, arrack, or sago cakes, to multiply the chance that one or other article would suit the itinerant merchant.
In modern civilized society the inconveniences of the primitive method of exchange are wholly unknown, and might almost seem to be imaginary. Accustomed from our earliest years to the use of money, we are unconscious of the inestimable benefits which it confers upon us; and only when we recur to altogether diferent states of society can we realize the difficulties which arise in its absence. It is even surprising to be reminded that barter is actually the sole method of commerce among many uncivilized races. There is something absurdly incongruous in the fact that a joint-stock company, called “The African Barter Company, Limited,” exists in London, which carries on its transactions upon the West Coast of Africa entirely by bartering European manufactures for palm oil, gold dust, ivory, cotton, coffee, gum, and other raw produce.
The earliest form of exchange must have consisted in giving what was not wanted directly for that which was wanted. This simple traffic we call
truck, the French
troc, and distinguish it from sale and purchase in which one of the articles exchanged is intended to be held only for a short time, until it is parted with in a second act of exchange. The object which thus temporarily intervenes in sale and purchase is money. At first sight it might seem that the use of money only doubles the trouble, by making two exchanges necessary where one was sufficient; but a slight analysis of the difficulties inherent in simple barter shows that the balance of trouble lies quite in the opposite direction. Only by such an analysis can we become aware that money performs not merely one service to us, but several different services, each indispensable. Modern society could not exist in its present complex form without the means which money constitutes of valuing, distributing, and contracting for commodities of various kinds.
Want of Coincidence in Barter.
The first difficulty in barter is to find two persons whose disposable possessions mutually suit each other’s wants. There may be many people wanting, and many possessing those things wanted; but to allow of an act of barter, there must be a double coincidence, which will rarely happen. A hunter having returned from a successful chase has plenty of game, and may want arms and ammunition to renew the chase. But those who have arms may happen to be well supplied with game, so that no direct exchange is possible. In civilized society the owner of a house may find it unsuitable, and may have his eye upon another house exactly fitted to his needs. But even if the owner of this second house wishes to part with it at all, it is exceedingly unlikely that he will exactly reciprocate the feelings of the first owner, and wish to barter houses. Sellers and purchasers can only be made to fit by the use of some commodity, some
marchandise banale, as the French call it, which all are willing to receive for a time, so that what is obtained by sale in one case, may be used in purchase in another. This common commodity is called a
medium, of exchange, because it forms a third or intermediate term in all acts of commerce.
Within the last few years a curious attempt has been made to revive the practice of barter by the circulation of advertisements.
The Exchange and Mart is a newspaper which devotes itself to making known all the odd property which its advertisers are willing to give for some coveted article. One person has some old coins and a bicycle, and wants to barter them for a good concertina. A young lady desires to possess “Middlemarch,” and offers a variety of old songs of which she has become tired. Judging from the size and circulation of the paper, and the way in which its scheme has been imitated by some other weekly papers, we must assume that the offers are sometimes accepted, and that the printing press can bring about, in some degree, the double coincidence necessary to an act of barter.
Want of a Measure of Value.
A second difficulty arises in barter. At what rate is any exchange to be made? If a certain quantity of beef be given for a certain quantity of corn, and in like manner corn be exchanged for cheese, and cheese for eggs, and eggs for flax, and so on, still the question will arise—How much beef for how much flax, or how much of any one commodity for a given quantity of another? In a state of barter the price-current list would be a most complicated document, for each commodity would have to be quoted in terms of every other commodity, or else complicated rule-of-three sums would become necessary. Between one hundred articles there must exist no less than 4950 possible ratios of exchange, and all these ratios must be carefully adjusted so as to be consistent with each other, else the acute trader will be able to profit by buying from some and selling to others.
All such trouble is avoided if any one commodity be chosen, and its ratio of exchange with each other commodity be quoted. Knowing how much corn is to be bought for a pound of silver, and also how much flax for the same quantity of silver, we learn without further trouble how much corn exchanges for so much flax. The chosen commodity becomes
a common denominator or
common measure of value, in terms of which we estimate the values of all other goods, so that their values become capable of the most easy comparison.
Want of Means of Subdivision.
A third but it may be a minor inconvenience of barter arises from the impossibility of dividing many kinds of goods. A store of corn, a bag of gold dust, a carcase of meat, may be portioned out, and more or less may be given in exchange for what is wanted. But the tailor, as we are reminded in several treatises on political economy, may have a coat ready to exchange, but it much exceeds in value the bread which he wishes to get from the baker, or the meat from the butcher. He cannot cut the coat up without destroying the value of his handiwork. It is obvious that he needs some medium of exchange, into which he can temporarily convert the coat, so that he may give a part of its value for bread, and other parts for meat, fuel, and daily necessaries, retaining perhaps a portion for future use. Further illustration is needless; for it is obvious that we need a means of dividing and distributing value according to our varying requirements.
In the present day barter still goes on in some cases, even in the most advanced commercial countries, but only when its inconveniences are not experienced. Domestic servants receive part of their wages in board and lodging: the farm labourer may partially receive payment in cider, or barley, or the use of a piece of land. It has always been usual for the miller to be paid by a portion of the corn which he grinds. The
truck or barter system, by which workmen took their wages in kind, has hardly yet been extinguished in some parts of England. Pieces of land are occasionally exchanged by adjoining landowners; but all these are comparatively trilling cases. In almost all acts of exchange money now intervenes in one way or other, and even when it does not pass from hand to hand, it serves as the measure by which the amounts given and received are estimated. Commerce begins with barter, and in a certain sense it returns to barter; but the last form of barter, as we shall see, is very different from the first form. By far the greater part of commercial payments are made at the present day in England apparently without the aid of metallic money; but they are readily adjusted, because money acts as the common denominator, and what is bought in one direction is balanced off against what is sold in another direction.