Creature From Jekyll Island by G. Edward

A WORKING DEFINITION

The dictionary is of little help. If economists cannot agree on what money is, it is partly due to the fact that there are so many definitions available that it is difficult to insist that any of them is the obvious choice. For the purpose of our analysis, however, it will be necessary to establish one definition so we can at least know what is meant when the word is used within this text. To that end, we shall introduce our own definition which has been assembled from bits and dabs taken from numerous sources. The structure is designed, not to reflect what we think money ought to be or to 138

THE CREATURE FROM JEKYLL ISLAND

support the view of any particular school of economics, but simply to reduce the concept to its most fundamental essence and to reflect the reality of today's world. It is not necessary to agree or disagree with this definition. It is introduced solely for the purpose of providing an understanding of the word as it is used within these pages. This, then, shall be our working definition: Money is anything which is accepted as a medium of exchange and it may be classified into the following forms:

1. Commodity money

2. Receipt money

3. Fiat money

4. Fractional money

Understanding the difference between these forms of money is practically all we need to know to fully comprehend the Federal Reserve System and to come to a judgment regarding its value to our economy and to our nation. Let us, therefore, examine each of them in some detail.

BARTER (PRE-MONEY)

Before there was any kind of money, however, there was barter, and it is important first to understand the link between the two.

Barter is defined as that which is directly exchanged for something of like value. Mr. Jones swaps his restored Model-T Ford for a Steinway grand piano.1 This exchange is not monetary in nature because both items are valued for themselves rather than held as a medium of exchange to be used later for something else. Note, however, that both items have intrinsic value or they would not be accepted by the other parties. Labor also may be exchanged as barter when it, too, is perceived to have intrinsic value to the person for whom the labor is performed. The concept of intrinsic value is the key to an understanding of the various forms of money that evolved from the process of barter.

COMMODITY MONEY

In the natural evolution of every society, there always have been one or two items which became more commonly used in

1. Strictly speaking, each party holds the value of what he is receiving to be more than what he is giving. Otherwise he would not make the trade. In the mind of the traders, therefore, the items have unequal value. That opinion is shared equally them both. The shorter explanation, however, is less unwieldy.

THE BARBARIC METAL

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barter than all others. This was because they had certain characteristics which made them useful or attractive to almost everyone.

Eventually, they were traded, not for themselves, but because they represented a storehouse of value which could be exchanged at a later time for something else. At that point, they ceased being barter and became true money. They were, according to our working definition, a medium of exchange. And, since that medium was a commodity of intrinsic value, it may be described as commodity money.

Among primitive people, the most usual item to become

commodity money was some form of food, either produce or

livestock. Lingering testimony to this fact is our word pecuniary, which means pertaining to money. It is derived from the word pecunia, which is the Latin word for cow.

But, as society progressed beyond the level of bare existence, items other than food came into general demand. Ornaments were occasionally prized when the food supply was ample, and there is evidence of some societies using colored sea shells and unusual stones for this purpose. But these never seriously challenged the use of cattle, or sheep, or corn, or wheat, because these staples possessed greater intrinsic value for themselves even if they were not used as money.

METALS AS MONEY

Eventually, when man learned how to refine crude ores and to craft them into tools or weapons, the metals themselves became of value. This was the dawning of the Bronze Age in which iron, copper, tin, and bronze were traded between craftsmen and merchants along trade routes and at major sea ports.

The value of metal ingots was originally determined by weight.

Then, as it became customary for the merchants who cast them to stamp the uniform weights on the top, they eventually were valued simply by counting their number. Although they were too large to carry in a pouch, they were still small enough to be transported easily and, in this form, they became, in effect, primitive but functional coins.

The primary reason metals became widely used as commodity money is that they meet all of the requirements for convenient trading. In addition to being of intrinsic value for uses other than money, they are not perishable, which is more than one can say for 140