Art. II.-INTEREST OF MONEY: MONEY.* By INTEREST may be properly defined as the price paid for the use of money. It has been, and still is, common to speak of the interest of money. some writers this expression is represented to be inaccurate. Among these writers are Adam Smith and J. B. Say. The former rather intimates than declares its impropriety; but it is expressly and repeatedly denounced by the latter. These gentlemen tell us that the proper expression is interest of stock or of capital, because in reality what is lent is the capital that is bought with the money. This objection to the common phrase, (a phrase which stands at the head of the present article,) is not merely a useless nicety or quibble; it is positively erroneous. For, in the first place, every one knows that money is sometimes borrowed for other purposes than the purchase of anything whatsoever; and, secondly, when it is wanted for some sort of purchase, it is frequently expended in purchasing the services of human beings, or other values, that are not called capital; and, lastly, when capital is purchased, the interest is not at all affected by the circumstance, inasmuch, as whatever may have been the fluctuations of the capital in point of value, the same sum of money is always to be returned, together with the stipulated interest. This interest ought certainly to be considered the interest of the money, as much as the price paid for any article is the price of that article, and not of something else for which it may happen to be exchanged. Were I, for instance, to borrow a horse, and exchange it for an ox, I could hardly persuade the owner of the former that it was an ox which he had lent me. It is quite common to speak of the price of money, meaning the interest paid for it. Strictly considered, this mode of speaking is incorrect, for interest is not the price of money, but the price of its use, just as horse-hire is not the price of the horse. I have defined interest as the price paid for the use of money. It is proper, therefore, to present some general account of money, and of price, before entering upon a special examination of the theory of interest. MONEY is sometimes defined as the medium of exchange. This definition does not seem to me to be either correct or precise. For, first, money is itself exchanged; it is not a mere medium of exchange. It has itself a value, and is often procured on account of that value, without any intention of further exchange in the way of purchase. Thus, it is hoarded by the miser, melted down by the smith, and may be thrown away by the madman. The proper description of sale is, the exchange of any article for money. True, the money is generally exchanged afterwards for something else; but the case might be the same in every species of transfer. Goods may be bartered for the purpose of further exchange. An article that is sold is often afterwards exchanged, as the money is which is paid for it: why, then, *For the first of a series of papers on this subject, the reader is referred to the Merchants' Magazine for April, 1849, (vol. xx., page 364.) That article embraced a brief account of opinions and practice concerning interests from the earliest to the present time. should one be considered the medium of exchange more than the other? Further, if the definition were correct, it would be wanting in one essential point of a good definition, namely, precision. There are other media of exchange, in the sense intended, besides money. The currency of the United States, for instance, is immensely greater in amount than its money. In my opinion, any material standard of value adopted by a whole community is money. It is not a good objection to this definition to say, as has been said, that money is itself of different value at different times and in different places, and therefore cannot be a standard. The imperfection of a standard is no proof that it has not really been adopted as such. Besides, it is plainly sufficient to make money very useful as a standard, that at any one time value may be estimated by it. It may be a standard of value at present, without being a standard of value from age to age. So as to the different value of money in different nations. It is sufficient to establish the utility of its adoption that in any one community all values may be estimated by it. The variations alledged, arise from the nature of the case. Value in trade is not a fixed mathematical relation, like abstract quantity or number. Nothing material can be found, the value of which is perpetually and universally the same. It is of great consequence, however, that there should be some standard to which value may be referred. The best, though imperfect, is therefore adopted by civilized nations. The articles used as money have been very various. We find mention of silver money in Genesis 23: 16. "Four hundred shekels of silver, current money with the merchant.” It is doubted, and with reason, whether this was what could be termed coined money. In ancient times, the metals were very commonly weighed out in making payment. This custom is frequently mentioned in the Bible.* Oxen and sheep have served the purpose of money. Homer informs us that the armor of Diomede cost nine oxen, and that of Glaucus one hundred. Some, it should be said, have conjectured that Homer speaks here of a coin which bore the same name as an ox. However this may be, we know that many savage nations in Africa, at the present day, use oxen as a standard of price. There can be but little reason for doubt that the case was the same among the early Greeks and Romans. It is known that the first coined money of these nations was stamped with the image of cattle. Montesquieu mentions that he had himself seen an Athenian coin with the figure of an ox upon it. At first, each piece of coin of this nature may perhaps have stood as the mere representation of an ox or other animal. In Abyssinia, and some other parts of Africa, salt is said to be employed as money. Throughout the East Indies, especially in Bengal and in the African trade, the shells of cowries (a species of fish called muscles,) are used instead of small coins. The Abbe Raymal informs us that in Mexico, at the time of its conquest by the Spaniards, grains of cacao were used as money. This statement is confirmed by Mr. Prescott, in his recent History of the Conquest of Mexico, who quotes the following exclamation of Peter Martyr, respecting this cacao currency: "Blessed money, (says he,) which exempts its possessor from avarice, since it cannot * See 2 Sam., 18: 12. Ezra, 8: 25, 26. Esther 3: 9, 4, 7. Job 28: 15. Jer. 82; 9 + Homer's Iliad, L. VI., c. 236. Esprit des Lois, L. XXII., c. 2. Hist. Phil. et Pol., L. VL be long hoarded nor hidden under ground." Mr. Prescott adds two other articles to the Mexican currency at this period, namely: bits of tin, cut in the form of the letter T, and transparent quills of gold dust.* This latter sort of currency, we observe, is now employed in California. The Mexicans always reckoned their money, not by weight, as they had no knowledge of scales, but by measure and number. In the colony of Virginia, tobacco was used as money, so that even the females, who, in 1620 and 1621, were introduced into it from England, were paid for at the rate of from one hundred to one hundred and fifty pounds of tobacco each. The metals, however, in the progress of civilization, came to be generally preferred and employed for the purposes of money. Iron was used among the early Greeks, its scarcity at that time rendering it more suitable than it would be now. is often spoken of as money in Homer. Brass was in use as money among the early Romans. Herodotus states that the first people who coined gold and silver were the Lydians. The Greeks borrowed the practice from them. Among the Romans the first person who coined money was Servius Tullius. It was of brass. Silver and gold were afterwards introduced. The civilized nations of modern times, together with many which cannot be called civilized, make use of gold and silver as money.. The superiority of these metals for the desired service consists principally in their unvarying character the world over, their sufficient rarity, their durability, and their manageableness as to division, impression, &c. Copper is still used in many nations for coins of small value. It Besides the money coined from metals, which has now come to be denominated, by way of distinction, hard money or specie, a peculiar kind of paper money, called bank notes, has sprung up in several countries, within the last hundred and fifty years, and has gradually increased its circulation to a very astonishing extent. The value of these notes or bills depends wholly on the fact that they are convertible into specie upon occasion. This remark is not invalidated by the circumstance that these notes have retained all, or nearly all, their former value, in some cases when specie could not be procured for them, as, for example, the notes of the Bank of England did, during its suspension of specie payments from 1797 to 1823; since, in this and other like cases, the refusal to pay specie has invariably been represented and taken as a temporary measure. The resumption of payments, though always postponed from time to time, during the long period of twenty-six years, was always supposed to be close at hand. The value of the bank notes arose from their presumed future convertibility into specie. Cases of this description do not prove the possibility of a paper currency not based upon specie, as is sometimes alledged; for every one knows that the notes of a bank which should announce its final cessation of specie payments would meet with a very different fate, would at once become utterly worthless. Bank notes, then, are only representations of value. Specie, likewise, is often spoken of as merely representative. This notion is incorrect in the sense intended. Specie has intrinsic value; it is no more representative of * Conquest of Mexico, vol. I., p. 145, 146. In his second volume, p. 140, he makes a statement which is slightly inconsistent with this. He there says that the bits of tin were “stamped, with a character like a T," instead of being cut into the shape of that letter. ↑ Hist. L. I., c. 94. Pliny, Hist. Nat., L. XVIII., c. 3; L. XXXIII., c. 13. any other article than that article is representative of it. In a certain sense, all values may be said to be representative of each other, and in this sense, Montesquieu remarks with truth that "in the same way that money is the sign of anything and represents it, everything is a sign and represents money." It is sometimes questioned whether or not money is merchandise. The proper definition of merchandise is, any article possessing intrinsic value, capable of being appropriated, and of a portable nature. Air possesses intrinsic value, since, without it, we could not live; but it is not capable of being appropriated, and therefore it is not merchandise. Land possesses intrinsic value, and is capable of being appropriated; but it is not of a portable nature, and therefore it is not commonly considered as merchandise. Gold and silver are, certainly, in all three respects, within the definition. They are merchandise of special value, since, in addition to that which they have of an intrinsic nature, they derive artificial value, from the circumstance of their being selected as money. He who can obtain this merchandise, may be sure of obtaining with it directly whatever other articles he may desire; a certainty not possessed by the owner of anything else. It is this universally satisfactory character of money which makes the chief practical difference between it and other merchandise, in matters of business. The power of coinage is usually, though not of necessity, retained by the government of a country. The power of declaring what shall be a legal tender, or, in other words, what money shall be considered in law as competent for the discharge of debt, of course belongs to the government, as the source of law. This latter power is totally distinct from the former; for a government may coin money which is no legal tender, but passes current only by the sufferance of the community, as is the case, for instance, in regard to our copper currency. Coined money is sometimes spoken of as the creation of the government. It is, however, in reality, no more created by the government than the hops which are marked by the general inspector, are created by that officer. Coinage is only the certificate of a value already existing in the gold and silver. Whatever the certificate is worth is added to the value of the material, and that is all. The amount of money which is most convenient for the use of any country at a particular time, depends on a thousand causes, which it is difficult, if not impossible to ascertain, with anything like precision. The requisite sum is diminished to an extent not commonly appreciated, by the use of substitutes for money-for example, those termed bills of exchange. Only general principles can be laid down as to the amount of money needed in any community. What is denominated division of labor, is the ground of the convenience of money. Hence it is that in civilized societies more money is needed than where things are in a ruder state; for in civilized societies, the division of labor is carried to the greatest extent. Where every man produces for himself all the articles which he wants, little or no money will be found. On the other hand, where each man produces but one article, money becomes very convenient for the purposes of sale and purchase, and the amount of value vested in it, or its substitutes, will increase in proportion to the prosperity of the community; unless, as may be the case, some improvement in *Esprit des Lois, L. 22, c. 2. |