others have contracted to pay him, just as the wheat broker finds his contracts to deliver wheat offset by the contracts which he holds for the delivery of wheat to him. The situation of a bank is similar. The banker is able to calculate how far under normal conditions his contracts to deliver money will be offset by contracts for the delivery of money to him. Only the differences or margins, just as on the produce and stock exchanges, have to be settled by the actual delivery of money.

While money has, therefore, come to have in modern society a somewhat restricted use, it is an error to treat credit operations as entirely independent of money. The reaction against the mercantile theory has led some writers to lay too much emphasis upon the conception that the precious metals are only the sign and representatives of wealth and not a part of its substance. They are such a sign only in the same sense that every other commodity is a sign and representative of wealth. Every commodity or service represents the means of obtaining other commodities and services in exchange. In this sense wheat is a sign and representative of wealth in the same manner as money, because it gives command over other goods and services.

The respect in which the precious metals differ from other commodities is one of degree and not of kind. They possess the highest degree of exchangeability. Gold and silver have become in developed commercial countries the material of money by the operation of a branch of the law of marginal utility, -the law that the object most useful for a given purpose in any community will gradually exclude the use of other objects. The evolution of money began with the perception of degrees of salableness of commodities. Goods vary greatly in their degree of salability in time and space. Some must wait a long time for a purchaser before they can be sold at a fair return; others can be sold only in particular markets. Exchange of such goods for those more exchangeable was a step towards the evolution of money.

Perishable goods and those of limited consumption are "merchandise" in the sense of being readily exchangeable, only for the interval that they are in the hands of the dealer. "Money," says M. Favre, "consists at the beginning in objects which might become merchandise. Its mobility is beyond doubt, but that which distinguishes it in a decisive manner from merchandise is the character (admitted in theory, if not a reality) of perpetual movement and absolute mobility, which exists of itself and not for a transitory period." In the natural contest for such a service the precious metals prevailed by a process of economic selection thus described by Professor Menger: '

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"With the extension of traffic in space and with the expansion over ever longer intervals of time of prevision for satisfying material needs, each individual would learn, from his own economic interests, to take good heed that he bartered his less salable goods for those special commodities which displayed, beside the attraction of being highly salable in the particular locality, a wide range of salableness both in time and place. These wares would be qualified by their costliness, easy transportability, and fitness for preservation (in connection with the circumstance of their corresponding to a steady and widely distributed demand), to ensure to the possessor a power, not only 'here' and 'now,' but as nearly as possible unlimited in space and times generally, over all other market goods at economic prices. And so it has come to pass, that as man became increasingly conversant with these economic advantages, mainly by an insight become traditional, and by the habit of economic action, those commodities, which relatively to both space and time are most salable, have in every market become the wares, which it is not only in the interest of every one to accept in exchange for his own less salable goods, but which also are those he actually does readily accept."

Money has attained its present position as a tool of exchange by a process of evolution from less exchangeable commodities. It was, as Professor Menger declares, "the spontaneous outcome, the unpremeditated resultant of particular, individual efforts of the members of a society, who

1 La genèse de l'argent, in Revue d'économie politique, April, 1899, xiii, 362. "On the Origin of Money," in the Economic Journal, June, 1892, ii, 248.

have little by little worked their way to a discrimination of the different degrees of salableness in commodities." Modern political economy tends more and more to appreciate such evolutions rather than to apply abstract standards in the judgement of past ages. It is not surprising, in view of the universal exchangeability of gold and silver, that they were considered, at the dawn of modern commerce, when paper titles were less secure than at present and credit had not reached its full development, as the most desirable form of wealth. As Professor Ingram expresses it, "The old feudal economy, founded principally on dealings in kind, had given way before the new 'money economy,' and the dimensions of the latter were everywhere expanding."'1 Money was for the individual the highest form of wealth, and by a natural error the mercantilists regarded it as the great object of national accumulation. It remained for the modern age to fully accept the view that money, while the most exchangeable form of wealth, is by that very fact the tool of exchanges and not their object. The progress of civilization has developed methods of exchange which have superseded in a large degree the necessity for coined money. But so long as substitutes were not equally efficient, money possessed the pre-eminent qualities thus described by Mr. Smart:

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"Money is the universal commodity; it is the one thing which everybody wants, and of which no one ever has enough; for, in promise and potency, it is almost everything else. Like all tools, it is not desired for itself, but for what it can do. The name which best conveys this is that of 'third commodity,' meaning by this the commodity interposed between the commodities or services which are the real objects of exchange; interposed, for instance, between the goods we make in order to sell and the goods we desire in order to consume."

1 "A History of Political Economy," p. 38.

Studies in Economics," p. 145. Mr. Smart contends that money possesses a character which does not justify its dismissal as a "mere commodity," but with the proper understanding of its use, it is not apparent why the term "commodity" is not applicable.

It is the power of universal exchangeability, almost unlimited in time and space, which makes the precious metals ardently sought in preference to all other goods on special occasions. They have no such preference on ordinary occasions. The man of intelligence who has money does not hoard it in the form of gold and silver. He converts it into consumable goods or productive capital. The contracts which he holds for the delivery of money to him he is willing to deliver to his bank in return for other similar contracts, which he employs to obtain commodities and which are cleared against many other such contracts by the mechanism of modern credit. The value of money, in the sense of its rental value, is less than that of almost any other commodity. A man who has a special use for it in normal times obtains it for two, three, four or six per cent,less rate of profit than is expected from the use of any other capital. It is when the relations between money and other commodities are changed by the abuse of credit that the money market approaches the condition of the produce or stock markets, when many dealers have sold "short" and are unable to obtain the commodities necessary to fulfill their contracts. Such conditions arise in the money market in times of panic, when every man seeks to compel the execution of contracts for the delivery of money to him, and seeks to obtain delay in the enforcement of his contracts to deliver money.

-a much

The true law of the value of money is derived from its requirement for the specific uses of settling balances and supplying the medium of small transactions. The value of money has only a remote relation to the whole volume of transactions in normal times. Even when conditions are abnormal,-when a general economic crisis has invoked a panic in the money market,-many instruments of credit continue to supplement the demand for money. Private credit may be so much impaired that the promise of the individual merchant is refused, but so long as confidence

remains unimpaired in banking credits, whether in the form of notes or checks, they supplement the supply of metallic money.

There are two forms of stating the demand for money, both of which relate directly to the question of supply and demand. The simplest meaning of the term, "the value of money," is that of the classical economists, who viewed value as the relation between money and the price of commodities. Money was considered as having an increased value when a given volume exchanged for more goods and a diminished value when it exchanged for fewer goods. A high value for money was translated into low prices and a low value for money into high prices, because in the former case less money was required to obtain a given article and in the latter case more money. The value of money was thus properly defined in its direct relations to other goods.

The "value of money," as used in the money markets, has a different sense, but a sense not without scientific justification. Value in this sense is the price of the rental of money, and it is for rental that money is usually required. A high value of money in this sense means that the discount rate at which money can be borrowed is high; a low value means that the discount rate is low. A high value indicates that the supply of money is small in proportion to demand and a low value that the supply is large. Such conditions tend to affect the value of money in the other sense, its exchangeability for goods, but the value in the sense of the rental price is much more sensitive than the value in the sense of command over goods. The rental value of the money, considered as a tool of exchange, has become, in mod

1 Professor Pantaleoni makes the proper distinctions and assigns a descriptive name to each form of value. "We must, therefore, avoid confusing the value of money, or its power of exchange, with the Value of the Use of Money, or rate of discount. But still more must we guard against confusing the value of money and discount with interest, i. e., the Value of the Use of Capital."-"Pure Economics," p. 227, 11.