property can be conveniently traded in, or exchanged, its value must be expressed in terms of the standard money.

3. It is clear by referring one article to another, which has been chosen as a common denominator, that the one article is directly comparable in value with all others similarly so referred. The price of any article is the quantity of the standard for which it may be exchanged. For instance, on comparing a desk with gold, we find that it will exchange for the quantity of gold in twenty dollars; while a book purchases only that quantity of gold which is in one dollar. Thus we know the exact relations of the two articles to a third, used as a standard; that is, we know their prices; and we can compare their exchange values by comparing their prices. There can be no such thing, however, as the price of an article without a standard in which the price is expressed. Whenever a price is quoted, we all have a tacit understanding as to the standard with which the article is compared. In the United States, for example, from 1862 to 1879 prices were quoted in a paper-money standard; but since 1879 in gold.

4. Evidently an article having value cannot be compared with another which has no value. The value of anything is the quantity of other articles for which it will exchange. For example, a desk exchanges for twenty books; then a desk is twenty times as valuable as one book, or a book is one-twentieth as valuable as a desk. Each of these articles has value relatively to the other. One cannot compare wheat with air (which has no value); or, to express it mathematically, quantities compared with zero are incommensurate. Hence, whatever is used to measure purchasing power must itself have purchasing power. We measure length only by something having length; and capacity only by something having capacity. Likewise, we can no more estimate the value of things by comparison with a commodity which has no value than we can measure the distance from Chicago to Denver by bushels.

5. Value is a relation, not an absolute thing like length. That is, value is a ratio. If the value of a desk increases relatively to books, then it follows of necessity that books have

lallen relatively to a desk. It depends merely upon the side fooked at, whether there has been a rise or a fall in value. When we state the price of wheat in the standard, say gold, we are comparing the value of wheat with gold; if the price of wheat rises we may correctly say, since wheat commands more grains of gold, either that wheat has risen, or that gold has fallen, in value relatively to the other. Consequently, there is no absolute measure of value as there is of length. A standard of value and a unit of length, like a yardstick, are wholly different in kind. A yardstick is an unvarying measure of length; but a metal, or any commodity, is not and never can be an unvarying measure of the relations of that metal or commodity to other commodities which are constantly changing relatively to each other. The very commodity chosen as a standard can be changed in value by causes affecting itself; and the other commodities (which are compared with the standard) can be changed by causes affecting them; so that the ratio of exchange with the chosen standard may be modified by causes affecting either or both terms of the ratio. It is inconceivable that any one article should alter exactly and in a compensating direction, with innumerable other commodities.

6. A wide difference should be made between the function of money as a standard and its function as a medium of exchange. A standard, whether it is a perfect one or not, is used to measure value; a medium of exchange is used to transfer value. The two processes are entirely distinct. The difference will be instantly seen by the analogy with weight: the machinery for weighing coal, the scales, does one duty; while that for transporting coal, the horses and wagon, does another duty. If, instead of coal, we think of all goods; and, instead of weight, we think of value (which is a relation), then money is used both as a measure of the value, and also as a means of exchangealthough these two functions are quite distinct. In the case of value, an article, after being expressed in terms of the standard, is ready to be exchanged. But the one important idea to be kept firm hold of in all discussions of money, is that when it comes to exchanging goods, the metal chosen as the standard is

not necessarily used as the medium of exchange. If gold, for instance, is chosen as the standard by a country, it does not at all follow that gold is used in all the transactions requiring a medium of exchange. The failure to keep this point clearly in mind has been a stumbling block to many; and it has been wrongly supposed that an increase of transactions always required a proportional increase in the standard coin. But, if it happens that goods are in fact exchanged readily and safely by means of other things than the metallic standard, then such a conclusion is entirely unwarranted. If a man has wheat or shoes, how are they actually exchanged for other things, under existing methods? On this point, a few words of explanation may be necessary.

7. The first historical fact which confronts us is that in a society which has passed beyond the stage of barter, but which has not yet developed the habits of a modern commercial nation, money is usually passed from hand to hand in buying and selling. The commodity selected as a standard is then, also, practically the sole medium of exchange. But as soon as commerce develops, expedients arise for saving the expense and risk of using actual money. The Romans, although they had a considerable commerce, had but a slight acquaintance with bills of exchange. The early Italian and Jewish merchants brought them into general use and after the fourteenth century the forms, laws, and customs relating to them were much the same as in the present day.'

Given a standard in which the prices of commodities are expressed, the progress of commercial civilization for many centuries has been in the direction of devising new means of exchanging goods at a diminishing expense. The incentive behind this movement was a strong one. In transferring coin, itself possessing value, between persons in the same town, and above all between persons separated by great distances over sea and land, the cost of carriage and the still greater risk from loss "A bill is nothing but an order to pay money addressed by the drawer to the drawee, or person on whom it is drawn, specifying the amount to be paid, the time of payment, and the person to whom it is to be paid."—JEVONS, Money and Mechanism of Exchange, p. 300.

and robbery were obstacles to be removed if possible. There was thus a standing premium in favor of devising expedients by which the actual transfer of money was obviated, and later, expedients by which effective substitutes might permit exchanges to be carried on without the necessity for money. This stimulus to invention has always been present in commercial history, and is the cause of the development of ingenious and safe means of exchanging goods without the actual use of coin, or metallic money.

8. For these reasons banks came into existence, at first, as safe places of deposit. Under the principle of coöperation, a bank with its vaults could do for all persons cheaply what each person would otherwise at great cost have been obliged to do for himself. In early days, too, the banks created the means by which their depositors could, without withdrawing it, transfer the ownership of coin held in their names. Such methods as changes by entries on the books of the bank, or by certificates, furnish the fundamental idea in which originated the bank note. The notes of a bank, therefore, arose from a natural process, in the interest of the public, by which the risks and expenses of using actual coin were lessened. The bank note originated, not as a means of profit to the bank, but as a convenience and saving to the community.

Finally, during the present century, the banks were employed by customers to create what is now the most largely used medium of exchange in existence. Persons gave the banks legal control over property, or collateral, and in return the banks coined this property into means of payment by crediting the persons with a deposit-account on which checks or drafts could be drawn in terms of current money. The banks became responsible that this property should be quickly realizable in cash, and thus were able to pay lawful money on demand for these instruments whenever presented. In this way, through the form of a discount (or loan) at a bank, and a consequent credit in the form of a deposit-account, any man having marketable goods could obtain means of payment, and by checks, or drafts, and bills, meet any of his debts. Today, this medium of exchange is so

largely used that over 90 per cent. of the large transactions in the country are performed by it without the use of actual money. This will be more fully explained at a later point (pp 90-91).

9. Then, by a process of evolution, governments, without being the depositories of money or of property against which notes or certificates were issued, have at times put forth promises to pay, when they had no means of paying. This inferior medium of exchange has always conflicted with correct business methods, and has always given rise to misunderstandings and confusion. When banks create media of exchange the standard of the country remains unchanged; but when governments put forth paper money, almost invariably a depreciated paper money is substituted for the former metallic standard.

From the above facts, it is clearly apparent that the commodity chosen as the standard is not the only medium of exchange. On the contrary, the whole history of money is concerned with the development of expedients by which the use of the standard coin can be economized. And to such an extent has this gone on that in Anglo-Saxon countries, where commercial honor and intelligence are high, the use of bills of exchange, bank notes, checks, and drafts has reduced the actual handling of coin to very narrow limits, practically to those transactions in which whether because of distrust, or because the operations are petty coin is still passed directly from hand to hand. (See Section 12.)

10. In early times the different functions of money were not clearly developed in distinct form. The article chosen as the standard was commonly used as a medium of exchange. But as soon as confidence arose between merchants, the exchange of goods did not necessarily require the use of the standard as money. In deciding upon an article which best serves society as money, it was evident that such an article, in early times, must have (so far as one article possibly could) both the qualities demanded for a standard and those demanded for a medium of exchange. In our day, however, when so many substitutes are used as media of exchange to save the use of the standard com