We have seen that writers of all classes are agreed as to the fundamental Nature of Money. It represents Debts which are due to persons who have done services to others, and have received no equivalent service in return. It is merely the Right to demand these equivalent services when they please and its special function is to measure, record, and preserve for future use these Rights : If all the services exchanged in society exactly balanced there would be no need for Money Supposing, then, that there was nothing but Metallic Money in use, the following axiom is evident "The Quantity of Money in any country represents the Quantity of Debt that there would be, if there were no Money " But, as we have seen, that in modern civilised countries these Debts or Rights are recorded in the simple abstract form of Rights against particular persons, as well as in Metallic Coin, which are Rights against the general community, the term Currency includes these Debts or Rights in both forms. Hence it is clear that the Currency represents nothing but Transferable Debt, and that whatever represents Transferable Debt is Currency, whatever its nature or form may be Consequently, the proposition necessarily follows "Where there is no Debt there can be no Currency" We shall see hereafter that all erroneous Theories of Currency have been founded on not perceiving the fundamental nature of Currency and the greatest monetary disasters the world has ever seen have been produced by violating these fundamental axioms. On Securities for Money and Convertible 38. We must now explain the distinction between Securities for Money and Convertible Securities A Security for Money always means a Security, or Obligation, for the Payment of a definite sum of Money by a definite person at a definite time. There is, therefore, always There are different forms some Person who is bound to pay it. of such Securities, such as Bank Notes, Bills of Exchange, Navy Bills, Exchequer Bills, and Debts of all sorts Convertible Securites are Securities which no particular person is bound to pay: but for which under usual circumstances, a purchaser can readily be found in the open market. A Convertible Security means any Property which can readily be sold. This species of Property includes the Funds, Shares in Commercial Companies, all Title Deeds to Goods of a moveable description, such as Bills of Lading, Dock Warrants, &c. As Convertible Securities means Property which can be readily converted into Money, there are of course all degrees of convertibility There is no absolute distinction in principle between the different species of Property. But of all species of Property the Funds are the most readily convertible: and the Land, or Real Property, is the least readily convertible: mainly in consequence of the difficulty and expense of its transfer Thus, Securities for Money are always Rights against a person, or Jura in personam, and are never Rights to specific things or Jura in re. Convertible Securities are never Rights against persons and certain kinds of them are always Titles to specific goods Sometimes a Security for money may be changed into a Convertible Security. This is done in what is called Funding the Unfunded Debt. The Government, like private individuals, often raises Money on its Bills, and is, of course, bound to pay them at maturity. These Exchequer Bills, as they are called, are like any other Bills, Securities for Money. Sometimes when these Bills, called Floating Debt, amount to a large sum, it is not convenient for Government to pay them off: and it gets its Creditors to agree not to demand repayment of the whole debt, but only to receive interest on it in perpetuity. When this is done the Creditor loses the Right to demand the principal sum from the Government: but he may sell the Annuity, or the Right to receive the future payment to anyone in the open market. It then becomes a Convertible Security, and is called the Funds, or Stock. This operation is termed Funding the Unfunded or Floating Debt In a similar way Railways have been allowed to borrow Money on their Bonds, termed Debentures. Finding it inconvenient to repay these large sums, they have formed them into Debenture Stock, upon which they are only bound to pay the Interest, like the Public Funds On Price 39. When any Economic Quantity is exchanged for any other Economic Quantity, each is termed the Value of the other. But when one or both of the Quantities exchanged is Money or Credit, they are termed the Price of the other. Price is therefore always Value expressed in Money or Credit Now the Value of Money is the Quantity of any Commodity or Service which can be got in exchange for it: the greater the Quantity so obtained the greater is the Value of Money: the less the Quantity obtained the less is the Value of Money Or if the commodity be taken as the fixed Quantity, the less the Money given for it the greater is the Value of Money and the more Money given for it the less is the Value of Money : Hence it is seen that-The Value of Money varies Inversely as Price Debts or Credits, however, are Commodities which are bought and sold like any material chattels and for the convenience of Sale, they must be divided into certain units. Coals are sold by the ton corn by the quarter: tea and sugar by the pound and other things by the ounce The Unit of Debt is the Right to demand £100 to be paid one year hence . The sum of Money given to purchase this unit of Debt is its Price and of course, the less the Price given to buy the fixed Unit of Debt, the greater is the Value of Money The But in the Commerce of Debts it is not usual to estimate the Value of Money by the Price paid for the Debt. As Money naturally produces a Profit, it is clear that the Price given for a Debt payable one year hence must be less than the Debt. Difference between the Price and the Amount of the Debt is the Profit made by buying it. This Difference or Profit is termed Discount. And it is clear that as the Price of the Debt decreases or increases, the Discount or Profit increases or decreases. In the Commerce of Debts it is always usual to estimate the Value of Money by the Discount, or Profit it yields Hence, in the Commerce of Debts-The Value of Money varies Directly as Discount This Rule embraces both branches of Commerce The Value of Money varies Inversely as Price, and Directly as Discount Hence it must be observed that the Term Value of Money has two distinct meanings. There are two great branches of Commerce the Commerce in Goods or Commodities: and the Commerce in Debts. And the expression, Value of Money, has two distinct meanings according as it is applied to these two branches of Commerce. In the Commerce of Commodities the Value of Money means the Quantity of the Commodity it can buy in the Commerce of Debts it means the Profit, or Discount made by buying the Debt On Interest and Discount 40. Profits made by trading in Money are made in two ways 1. When the person advancing the Money agrees to defer receiving Profit until the end of the time agreed upon. In this case the Profit is termed Interest If a man "lends" £100 for a year it is in reality a Sale, or Exchange, in which he sells the Money, and in exchange for it he receives the Right to demand £105 at the end of the year: and the £5 is the Interest 2. Where the Profit is retained at the time of the advance and deducted from the amount "lent." In this case the Profit is termed Discount But Discount itself is of two kinds and (a) In the ordinary books of Algebra it is said that Discount is where the Profit is retained at the time of the advance the sum advanced is such a sum as, improved at the given Rate of Profit, would be equal to the full sum at the end of the period of the advance. It is therefore the Present Value of the Sum at the agreed upon Rate of Profit. This may be called Algebraical Discount. It is used by Insurance Companies in determining the Present Value of future payments, and in some other cases (b) But this kind of Discount is never used by Bankers. In banking it is invariably the custom to retain the full amount of the Profit agreed upon at the time of the advance. Thus if a Banker discounts a Bill of £100 for a year at £5 per cent., he deducts and retains the full £5, and advances £95. That is, he "lends" £95, and in exchange for it he acquires the Right to demand £100 at the end of the year. As this method is always used in Banking, it may be termed Banking Discount The Profits made by Interest and Algebraical Discount are exactly equal: but Banking Discount is more profitable because in the former case a Profit of £5 is made on the actual advance of £100 in the latter case on that of £95 In either case the Money is the Price of the Debt, and the Debt is the Price of the Money The Rate of Interest or Discount is the Amount of the Profit made in some given Time, as the year On Production 41. The term Production comes from the Latin producere, to lead or bring forth: it is the technical word in Latin for to expose for sale Thus, in the Eunuchus of Terence, Thais says "Pretium sperans illico Producit, vendit” "Hoping for a good price, offers her there for sale, sells her" So, in the Heauton Timoroumenus, Menedemas says 66 Ancillas, servos Omnes Produxi ac vendidi" "All the slaves, male and female, I offered for sale, and sold" The original sense of Produce in English is exactly the |