4. WHY MONEY CAN BE MADE OF PAPER

The Fact

Paper-money, such is the contention, is impossible, since money can exchange only its own "intrinsic value", its "value as a substance", and paper-money has no "value as a substance".

In striking contradiction to this contention stands the plain fact that the enormous present-day exchange of products is effected throughout the world almost exclusively with paper-money or with banknotes only partly covered by gold. One can travel around the world in any degree of latitude and spend or receive nothing but paper-money. Germany, England and Turkey are, as far as I know, the only civilised countries today with a preponderatingly metallic circulation; elsewhere gold coins are met with only exceptionally.

(* Since this was written in 1907, the last gold coins have disappeared from circulation.)

In Norway, Sweden, Denmark, Austria, Holland, Belgium, Switzerland, Russia, Italy, France, Spain, Greece, the United States, Canada, Mexico, Brazil, Argentina, Paraguay, Chile, Australia, New Zealand, British India, Japan, the Dutch Indies, that is, over almost the whole world, commerce is conducted with paper-money or banknotes and so-called subsidiary or token coins. Those who want gold must travel to the capital and ask for it at the counters of the Bank of Issue. Even then they often receive the gold only in bars and upon payment of a premium. In ordinary business transactions nobody demands payment in gold in any of these countries; indeed, in many of them, such as Argentina, Uruguay, Mexico and India, there are no gold coins in the national monetary units.

If we buy in Germany, with gold coins, drafts on any of these countries, the drafts are always paid in paper-money or, if we raise no objection, with a bag of silver coins, that is, in coins which, to use Helfferich's terminology, would lose half the "substance of their value" (Wertstoff) if struck with a hammer.

These banknotes do indeed promise the holder, according to their inscription, a certain quantity of gold, hence the general opinion that they are not paper-money. But this circumstance is not a sufficient explanation of the fact that for one rouble, rupee or dollar in gold, there exist three or more roubles, rupees or dollars in paper-money. Two-thirds of the banknotes in circulation are not covered by gold, two-thirds of the banknotes must therefore owe their existence and properties to causes other than the promise of convertibility. Somewhere or other, in commerce, on the stock-exchange or elsewhere, forces must exist which prevent the holders of banknotes from taking advantage of the promise of convertibility. Otherwise the fact would be inexplicable that for 10 - 20 - 100 years the creditors of the Bank of Issue (the holders of the notes) make no use of their rights. Forces must also exist which for generations keep the coins out of the melting-pot.

I shall soon trace these forces to their origin. For the moment I only wish to establish their existence, to prepare the reader for the assertion that in all these countries, in spite of the inscriptions on the banknotes, the currency is paper, not metal money.

If the State prints on a piece of paper:

"This is 100 grammes of gold",

all the world believes the assertion, and such a scrap of paper may circulate for years at par with massive gold. Sometimes it may even bear a premium in relation to gold. (* In Sweden in 1916, 105 kronen in gold were paid for 100 kronen in paper-money. The substitute products of the war were dear and bitter. Only the substitute for gold, paper-money, failed to make us sigh for peace.)

But if the same State, on a similar piece of paper, promised a milch cow, all the holders of such papers would arrive next day with a halter for the cow.

Now if a piece of paper can for generations, for an interminable series of people in the most varied economic situations, represent completely a certain quantity of gold, whereas the same piece of paper could not represent for twenty-four hours a cow or any other article of use, this proves that, for all the essential properties coming into consideration, paper and gold coin are for all men interchangeable, that is, indifferent. Gold discs or paper in the form of money perform for all men the same services. Further, if the promise of conversion were the covering of the banknotes which keeps them in circulation, if banknotes should be regarded simply as promises to pay, if the issuer were debtor and the holder creditor as with bills of exchange, then the Banks of Issue would have to pay their creditors, that is, the noteholders, interest. Interest is paid by the debtor upon every other kind of promise to pay, without exception. But with banknotes the relation is inverted. Here the debtor, the bank, receives interest, and the creditor, the holder, pays interest. Banks of Issue can consider their debts (banknotes, right of issue) as their most valuable capital. To produce this miracle, to reverse so completely the relation between debtor and creditor, extraordinary forces must be at work in banknotes removing them from the category of promises to pay.

Furthermore, if banknotes are to be considered as promises to pay by the State, the fact remains inexplicable that these promises to pay, only one-third covered, without a sinking-fund and bringing the holder no interest, are usually at a premium in comparison with the ordinary loans of the State which bear interest and are covered by the power of the State to levy taxes. A German 100-mark note, for example, upon which interest is paid by the holder, is equal to 117 marks of the German Imperial Loan which brings in 3% interest to the holder.

Relying on these facts, therefore, we deny that it is the promise of conversion that gives life to banknotes and ordinary papermoney. We assert that forces must exist elsewhere in commerce which play the part at present erroneously assigned to the metal reserve (so-called covering), or to the promise of conversion. These forces, hidden for the moment, which turn a promise to pay (banknote) into capital, and force the creditor to pay interest to the debtor, are, we maintain, strong enough by themselves to assure the functioning of money in the market. Relying on these facts we assert that money can be made out of paper which, without any kind of promise of conversion, without resting on any particular commodity (gold, for example), bears only the following inscription:

"One Dollar" (or "Mark", "Shilling", "Franc", etc.)

or "This Piece of Paper is in itself one Dollar."
or "This Piece of Paper is in commerce, in State-Treasuries and in Courts of Justice legal tender for 100 Dollars."
or, to express my meaning, if not more clearly, at least more drastically:

"He who presents this Piece of Paper for redemption at the Bank of Issue will receive 100 Lashes (negative promise of payment).

In the markets and shops of the country, however, the holder will receive in goods as much as demand and supply allow him; that is, as much as, by bargaining, he can make his own."

I think that I have here expressed myself with sufficient clearness and that there can be no further doubt about what I mean by the expression paper-money.

Let us now investigate the forces which make it possible that men will scramble for papers with any of the above inscriptions, that men will work in the sweat of their brow to earn such papers, that men will give their produce, goods with "intrinsic value", in exchange for such papers, that men will accept bills of exchange and mortgage deeds payable in such scraps of paper and hoard them as so-called "stores of value", that men will "eat their bread in sorrow and weep their nights away" brooding upon how they can obtain these scraps of paper to meet an expiring draft - the forces which expose to bankruptcy, sequestration and loss of honour, men who fail to meet their liability to deliver, at a given time and place, papers with any of the above inscriptions - the forces, finally, which allow men to live grandly, year in, year out, without work or loss of property, because they have placed these papers somewhere as capital.

What is the hidden source from which such a scrap of paper - paper-money, the money of John Law and other paper-money swindlers, the abhorrence of orthodox economists and little minds - draws its force ?

Explanation of the Fact

If a person needs and wishes to obtain something, and if the desired object happens to be in the possession of another and cannot otherwise be obtained, he will usually be forced to offer some of his possessions to induce the possessor of the desired object to surrender it. That is, he will bring the object into his possession by giving something in return. This he must do even if the object he desires is useless to the other. It suffices for the possessor of the object to know that someone needs it or, still more, is compelled to obtain it, for him to refuse to give it for nothing; indeed, a man will often keep or gain possession of an object solely because he knows that behind him comes another person who can employ the object usefully. And the more urgent is the latter's need of the object, the higher will the owner screw up his demands.

What we have here said seems at the present day so natural and so obvious that many persons will consider its expression superfluous; indeed, so far as I know, this is the first time the statement occurs in a piece of economic writing. Yet this is the fundamental law of present-day economic life, of commerce, of the economic relations between the individuals composing a State and between these individuals and the State.

This "epoch-making discovery" is not more stupid and obvious than Newton's discovery of the law of gravitation, and it has the same fundamental importance for economic science as Newton's law for physics.

In gaining possession of an object which is useless to us, but which we assume or know will be sought after by others, we can have only one purpose in mind, namely to embarrass others and then to exploit their embarrassment. Our purpose is usury, for to bring someone into embarrassment in order to exploit his embarrassment, is to practice usury.

The fact that the exploitation is mutual may possibly extenuate the offence, but it is nevertheless true that exploitation of our neighbour's need, (*One must not always picture shivering beggars in this connection. Rockefeller is in " embarrassment " when fuel-substitutes interfere with the sales of petroleum. Krupp is in embarrassment when the expansion of his factories requires the purchase of a peasant's field. ) mutual plundering conducted with all the wiles of salesmanship, is the foundation of our economic life. Upon this foundation is built the whole fabric of exchange; it is the fundamental economic law which automatically regulates the relations in exchange, that is, the prices of all commodities. Remove this foundation and our economic life would collapse. The only remaining method of exchanging commodities would be the Christian, socialistic, communistic, fraternal method of mutual giving.

Are examples necessary in explanation ?

Why does the post-office charge two cents for a letter and but one cent for a printed packet, although the service rendered is the same ? Simply because the letter-writer is likely to have urgent reasons for sending the letter, whereas the dispatch of the printed packet would often be omitted if postage were higher. The letter-writer is under compulsion, the sender of printed-matter is not, and solely for this reason the letter-writer must pay double the postage.

Or why are chemists' shops in Germany with a stock of 10,000 marks sold for half a million ? Because the privileges granted to the chemist by the State allow him to charge higher prices for medicines than would be possible with unrestricted trading. (This explanation holds good even if we admit that, in return for the privileges, the State requires scientific training).

Or why does the price of wheat often rise in Germany in spite of plentiful harvests ? Because the import-duty excludes competition and the German farmer knows that his countrymen must buy his product.

It is indeed said that prices are raised or lowered by "the state of the market". We try to ignore the personal motive, the action, and to find a scapegoat to bear the odium of usury, by saying that prices are determined by demand and supply; but how could demand and supply and "the state of the market" exist without the living agents who make the separate transactions ? It is these living agents who cause the fluctuations of price, and the condition of the market is their tool. And who are these agents but ourselves - the whole population? Everyone who brings something to market is animated by the same spirit, namely, to obtain the highest price that the state of the market allows him to obtain. And everyone seeks to exculpate himself by speaking of something impersonal, the state of the market, whereas in reality everyone is exculpated by the fact that the exploitation is mutual.

Anyone, it is true, who asserts with Karl Marx that commodities exchange themselves (in proportion, be it noted, to their "intrinsic value") is spared the necessity of practising usury; he need have no scruples in pressing his debtors or in letting his workmen go hungry. For the usury is caused, not by him but by his property. It is not he who exchanges; his shoe-polish exchanges itself for silk, wheat or leather. (* Marx, Capital, Vol.1, p.3) The product makes the deal and makes it by reason of its "intrinsic value".

But those of us who are unable to grasp this ghostly property of commodities called value, and who therefore regard the exchange of commodities as an action, and the commodities and state of the market as accessories of this action, will be able to discover no other motive for such action than the desire common to all owners of commodities, to give as little as possible and to receive as much as possible. In every exchange, from wage-negotiations to dealings in stocks, we observe that both parties seek information about the state of the market. Sellers try to find out whether buyers urgently require their commodities, and they are especially anxious to conceal the fact that they are compelled to sell immediately. In short, we soon convince ourselves that the principles of usury are the principles of commerce in general, that the difference between commerce and usury is a difference in degree, not a difference in kind. The merchant, the workman, the stock-broker have the same aim, namely to exploit the state of the market, that is, the public at large. Perhaps the sole difference between usury and commerce is that the professional usurer directs his exploitation more against specific persons.

Therefore I repeat: the effort to call out the largest possible return service for the smallest possible service is the force that directs and controls the exchange of commodities.

It is necessary to state this with absolute clarity, since nothing but the recognition of this fact can enable us fully to understand the possibility of paper-money.

Let us now assume that Jones has somehow obtained possession of a piece of paper-money with which he can satisfy none of his physical or spiritual needs, and that Robinson, to whom, for some reason, it is useful, asks Jones to let him have it. The knowledge we have just gained makes it clear that Jones will not hand over the piece of paper for nothing.

But the mere fact that it cannot be had for nothing would in itself transform the paper into paper-money, since all that we expect of paper-money, for the moment, is that it should cost more than the paper of which it is made. It must not be possible to obtain paper-money gratis. Money fulfils its function because there is always someone looking for it and forced to give something in exchange. (*Orthodox and socialistic economic theory deny the possibility of this return service, and must continue to do so, for the return service would stamp the surrender of the paper as an exchange, and an exchange would, to use the terminology of these theories, presuppose "intrinsic" or "exchange" value. But we have assumed that the piece of paper was in itself without "intrinsic" or "exchange" value. (It is immaterial, for the moment, whether we can connect these terms with reality). The orthodox and socialistic doctrines of value assert that a commodity can exchange only for the amount of value it contains (exchange value) and if the pieces of paper-money in the hypothesis have no exchange value, the exchange, the price given, is an impossibility. For such an exchange there is, according to the doctrine of value, no "measure of value" to "measure" the return service. Paper-money and commodities are incommensurable quantities.)

To account for the possibility that paper may become paper-money, it only remains to be proved that Robinson may actually find himself compelled to obtain the piece of paper-money in the possession of Jones. The proof is not difficult.

The products of the division of labour (* By division of labour we mean here work which results in objects of exchange, that is, wares, in contrast to primitive economic production which aims at the immediate satisfaction of needs. The industrial division of labour, the multiplication of the processes by which single products are manufactured, is technical division of labour and should not be confused with the economic division of labour.) wares, are from the outset destined for exchange, that is to say, they have for their producers the same characteristic that money has for an of us - they are useful only as objects of exchange. It is only the prospect of exchanging his products, his wares, for other wares that causes the producer to abandon the primitive form of production and to adopt the division of labour.

But if wares are to be exchanged for wares, a medium of exchange, what we call money, is a necessity. The only alternative to a medium of exchange is barter, and barter, we already know, becomes impracticable after the division of labour has developed to a certain degree. It is easy to see that barter is possible only under quite primitive economic conditions.

Money, a medium of exchange, is the essential condition of a highly developed division of labour, of the production of wares. For the division of labour a medium of exchange is indispensable.

But the nature of a medium of exchange is such that the free production of the medium chosen must by some means be excluded. If everyone were free to manufacture money according to his own system, the variety of the money produced would disqualify it for the purpose it has to fulfil. Everyone would declare his own particular product to be money, and we should be back again to barter.

The necessity for unity in the money system appears from the fact that not even a double standard was considered workable. Or suppose that agreement had been reached to adopt gold as the standard, but that the manufacture of the coins had been left free. Coins of every shape, weight and degree of fineness would then be in circulation together - an impossible situation. (Such "agreement" is in itself a State action, for everything upon which we can reach agreement is the material out of which the State is built).

By whatever method the unrestricted manufacture of money is excluded; whether the result has been obtained by legal enactment or by difficulties in the production of the money-material (gold, cowry-shells, etc.), whether the regulation of money has been conscious or unconscious, whether the people willed it in solemn assembly or simply yielded to the thrust of advancing economic forces - in any case we have here an action of the people, and what is such a unanimous action of the people other than a law, an action of the State? Thus the medium of exchange has always the character of a State institution and this is equally true of coined metal, cowry-shell or banknote. The moment a people has come - no matter how - to recognise a certain object as money, this object bears the stamp of a State institution.

The choice is, therefore, either State money or no money. Freedom of enterprise in the manufacture of money is an impossibility. This is too obvious to require further explanation.

(* Where natural products serve as money, unrestricted production is eliminated by the choice of a money-material (cowry. gold) which at that time and in that place cannot be produced in unlimited quantities or cannot be produced at all.)

It is true that at present the production of the money-material is unrestricted, and that the right of free coinage in practice converts the money-material into money. But this is not an argument against the above theory of money; for, in spite of the right of free coinage, the money-material is not in itself money, as is strikingly shown by the history of the Prussian thalers.

As the right of free coinage of gold is granted by law, it is not a property of gold, and it can at any moment be withdrawn by law (closure of the mints to silver).

But in any case the production of the money-material is at present only nominally unrestricted. The natural difficulty of gold production makes this freedom illusory.

Nor is this theory of money incompatible with the fact that in many undeveloped countries (in the United States, for instance, during the colonial period) powder, salt, tea, hides, etc., were used as media of exchange. Here we have barter, not money. The salt, tea, powder, etc. received in exchange for the pioneer's produce were used in his household. These wares did not circulate, they never returned to their starting-point, the port at which they were unloaded: they were bought because of their material properties, and consumed. They had to be continually replaced by new wares. But it is characteristic of money that it is bought, not because of its material, but because of its function as a medium of exchange; it is not consumed, but merely used as a medium of exchange. Money describes a circle around which it continually moves; it returns repeatedly to its starting point. If a package of Chinese tea is to be considered as money, it must have returned to China after circulating for years through the American colonies, just as a silver dollar of the United States may, in the course of trade, reach China, circulate for years there and, again by way of trade, return to Colorado to be paid out as wages to a miner and to descend once more into the mine from which it came. Furthermore, the price of the package of tea continually increased in proportion to the distance separating it from the port of entry, all charges for transport, interest and middleman's profit being added to its price, whereas the silver dollar could travel ten times around the world and be given back to the miner for the price for which he originally supplied it . In most countries coins 100 years old, or more, are in circulation. Such a coin may have changed hands 100,000 times, yet no one in this long chain of holders has ever thought of consuming, that is, melting it on account of its content of gold or silver. For 100 years such a coin has been used as a medium of exchange; for 100,000 holders it has been not gold but money; not one of the holders has had any use for the money-material.

This, then, is the criterion of money, that the holder should be indifferent to the money-material. Solely for this reason, solely because of this complete indifference, can poisonous, verdigris-coated copper coins, worn silver coins, handsome gold coins and gaily printed slips of paper circulate side by side at parity.

The cowry-shells used as a medium of exchange in the interior of Africa have a somewhat greater resemblance to money. The shells are not consumed, the purchasers are much more indifferent to them than are the purchasers of tea and powder. They circulate and so do not need to be continuously replaced. Occasionally they may even reach their point of departure, the coast. Here and there they may, indeed, be diverted from their function as money and used as ornaments by the women, but their economic importance is independent of this use. Cowry-shells - if not expelled by some other medium of exchange - would certainly continue to be used as money, even if they went out of fashion as ornaments. They would then be a true medium of exchange like our copper, nickel and silver coins, or our banknotes, which can be used only as media of exchange; they would be true money. And they could, like our money, be called social or State money, the word "State" being applied in a restricted sense to such undeveloped countries. The State monopoly of the manufacture of money would be here preserved by the impossibility of producing in Central Africa a kind of shell found on the coast, thousands of miles away. (The shells can be obtained, like gold in Europe, only by way of trade, by exchange.)

But if a medium of exchange is the necessary condition for the division of labour, and if such a medium of exchange is conceivable only as State money, as money produced or controlled by the State, by means of special currency laws, what choice has the producer who brings his wares to market and finds no other money than pieces of paper - the State having decided to produce no other form of money than paper-money ?

If the producer rejects this money (say because it is not in harmony with the orthodox or socialistic theory of value), he must also give up hope of exchanging his produce and return home with his unsold potatoes, newspapers, brooms or whatnot. He must give up his trade and the division of labour, for he can buy nothing if he sells nothing, that is, if he refuses to accept the money circulated by the State. The producer's strike would came to an end in 24 hours; for 24 hours only could he persist in his theory of value and his arguments about the fraudulency of paper-money. For hunger, thirst and cold would then have done their work and forced him to offer his wares in exchange for paper-money inscribed by the State, let us say, with the following inscription:

"Anyone presenting this at the Bank of Issue will receive 100 Lashes, but in the markets he will receive as much merchandise as demand and supply permit him to obtain."

Hunger, thirst and cold (to which we may add the tax-gatherer) force all those who cannot return to primitive production, all those who desire to preserve for their work the advantages of the division of labour (and that, in a modem State, means almost everyone), to offer their products for the paper issued as money by the State. That is, all these persons are forced to create, with their wares, a demand for paper-money, and because of this demand the possessors of such paper will not surrender it for nothing. They will ask as much for it as the market conditions allow them to obtain.

Paper has therefore been transformed into paper-money:

1. Because the division of labour has great advantages.
2. Because the division of labour creates wares, that is, commodities useful to their producers only as objects of exchange.
3. Because at a certain stage in the development of the division of labour, the exchange of wares becomes impossible without a medium of exchange.
4. Because a medium of exchange, from its very nature, is only possible as State money, or at least social money.
5. Because the State, according to our hypothesis, has provided no other money than paper-money.
6. Because all possessors of wares are faced with the alternative either of accepting the paper-money provided by the State or else of abandoning the division of labour. And finally:
7. Because the holders of this paper-money do not surrender it for nothing when they see that the producers are in difficulties and must offer their wares for this paper.

The proof that money can be made of cellulose is now complete, and I could at once proceed to the next question, "How much produce will, or should, the piece of paper-money obtain for its holder ?" But the importance of the subject induces me to take account of the prejudices opposed to the idea of paper-money and to expose the fallaciousness of the more prominent among them. By this course I hope to gain the confidence of those judicious or cautious readers who are ready to admit that the proof given above is logically deduced, but who fear that the premises may be incomplete and the proof invalidated by some fact not yet considered.

(* I again take the precaution of mentioning that up till now I have discussed only the possibility of making money out of paper. The question whether such money can have any advantages over metal money remains quite untouched and will be treated later.)

Like others who have wrestled with the problem of paper-money, I could have cut a long story short by saying that the State could demand the payment of taxes, fines, etc. in paper-money.

If the State, for example, sold postage-stamps, tickets on the State railway, timber from the State forests, salt from the State mines only for paper-money manufactured by it, if import-duties, tithes, education-rates, could be paid only in such paper, everyone would of course consider this paper something highly valuable and would refuse to part with it for nothing. The State would thus promise the holders State services instead of gold, that is, many services instead of one service. It would then be these services that give life to paper-money.

But this explanation, as will appear later, would soon confront us, like all other paper-money reformers and paper-money manufacturers, with insoluble problems. He who is unaware of the real foundation of paper-money, as given in the seven points above, can trace back no single economic phenomenon to its final cause.

Among the most conspicuous "proofs" of the impossibility of paper-money is the assertion - we may call it the chef-d'oeuvre of the bullionists - that wares can be exchanged only for wares, since no one would give a useful object for a useless one, a scrap of paper.

This argument seems so conclusive that, as far as I know, all paper-money theorists have prudently avoided dealing with it, probably because they were unable to see through the fallacy involved. With its aid the advocates of a metal standard have always succeeded in proving a priori the impossibility of paper-money and in repelling scientific inquiry from this field.

"Wares can be exchanged only for wares." That is undoubtedly true, but what is a ware ? A ware is the product of the division of labour, and to their producers the products of the division of labour are useful only as media of exchange. They are of no immediate use, as we have already shown. What could a farmer who had grown 100 tons of potatoes, or a cotton spinner employing a million spindles, do with their products but sell them, that is, use them as objects of exchange ?

After this definition of terms the assertion that wares can be exchanged only for wares requires a very different interpretation. All it implies is, first (by the use of the term "ware") that the possessor or producer of the thing to be exchanged should have no use for it.

Secondly it implies that the thing for which the ware is exchanged should also be useless to its possessor - and is not this true of the piece of paper-money ? Is not this slip of paper, apart from its property as money, an absolutely useless object ?

The assertion that "wares can be exchanged only for wares" becomes therefore a proof that paper-money is possible, not a proof that it is impossible. It is evidence against, not for, the orthodox theory of metallic money.

If we turn now to the reason given for the assertion: "For no one would give a useful object for a useless one" we at once discover a fallacy. The assertion itself refers to wares, and wares are always useless to their possessors: but the explanation refers not to wares, but to useful objects, to goods for use.

Applied to our example, the above argument runs as follows:

"Potatoes can be exchanged for thread, since potatoes are useful to the farmer and thread to the cotton spinner by virtue of their intrinsic value." This is obviously untrue. What possible immediate use, we repeat, can the cotton spinner find for the enormous quantity of thread ?

But if the explanation given is untrue, that does not impair the truth of the assertion itself that "wares can be exchanged only for wares". In order to make paper-money conform to this contention, we must prove that it is just as much a ware as the wares which it helps to exchange. We wish to leave no room for misunderstanding; we claim for the piece of paper, for the gaily printed leaflet with the absurd inscription:

"100 Lashes will be paid at sight by the National Currency Office to the bearer of this paper, but in the markets he will receive for it as much produce as by bargaining he can make his own", of a ware, a ware obviously of enormous importance. We admit for paper-money no borrowed, stolen or transferred properties. Above all we must not recognise the piece of paper-money as a ware simply because the State promises its holder some service unconnected with its function as money. On the contrary, we wish to persuade the reader to endorse the apparent paradox:

"Paper-money is purely a ware, and it is the only object which, even as a ware, is of use to us."

To be regarded as a ware, an object must possess the following two characteristics:

1. It must be in demand, that is, someone must want the object, or be forced to obtain it, and for this reason be prepared to give another ware in exchange for it.
2. To create this demand the object must of course be of use to the buyer, otherwise it is not sought for and purchased.

Fleas, weeds and stenches are for this reason not wares, nor are objects without an owner. But if an object is useful (useful to the buyer, not to the seller), and if it cannot be obtained gratis, all the conditions are fulfilled that make it a ware.

That paper-money satisfies the first condition we proved when we demonstrated that money, State money, is an absolute necessity for the division of labour, and that all possessors of wares, are, by the nature of their possessions, compelled to offer their wares for paper-money, that is, to create a demand for paper-money, if the State provides no other form of money. If Germany demonetised gold as it demonetised silver, and substituted paper for gold, the owners and producers of wares would be compelled to accept this paper-money. One and all would have to create with their produce a demand for the paper-money. Nay more, the demand for this paper-money would be exactly as large as the supply of wares awaiting sale, which in turn would depend upon the production of wares.

Paper-money therefore plainly fulfils the first condition. Petroleum, wheat, cotton, iron have also, most certainly, the characteristics of wares; they are among the most important staple articles on the market. Yet the demand for these articles is not so unconditional as the demand for paper-money. Everyone today who carries on a trade and produces wares, that is, everyone who has given up primitive production and takes part in the division of labour, creates with his products a demand for a medium of exchange. All wares without exception are the embodied demand for money - for paper-money if the State provides no other form of money. But not all owners of wares buy iron, petroleum, wheat with the money obtained for their products. For iron, petroleum and wheat there are many substitutes, whereas for money the only substitutes are primitive production and barter, and these substitutes would only come into consideration if 90% of the present population, all those, namely, who owe their existence to the division of labour, had starved to death.

The demand for paper-money is called into existence therefore, by the fact that the products of the division of labour are wares. The division of labour, which gives birth to wares, is the inexhaustible source of the demand for money, whereas the demand for other wares is far less urgent.

The origin of the demand for an object can of course be explained only by the fact that the object demanded, in our case paper-money, performs some service for the buyer (not for the present possessor) or, in other words, is of use to him.

But this oblong piece of gaily-printed paper raised to the dignity of money, the medium of exchange recognised by the State and consequently the only medium of exchange - is it not a useful thing ? Is this scrap of paper of no use which permits the workman, the doctor, the dancing-master, the king, the clergyman to convert products or services, utterly useless to them personally, into goods for consumption ?

Plainly we must here keep in mind, not, as usually happens, the material aspect of the paper-money, the scrap of paper itself, but the whole - the paper, that is to say, plus its public status as medium of exchange, or money. We must think of money as a manufactured product, as a manufactured product, moreover, which is protected by law and monopolised by the State.

It is indeed true that if we deprive paper-money of it's distinctive characteristic as the only legally recognised and practically universal medium of exchange, what remains is but waste paper. But is not the same true of almost any other object when considered simply as a material, apart from its use ? Scrape together the colours of an oil-painting, strike with a hammer a token coin, an inkpot, a soup-tureen, and what remains but rubbish ? If we regarded a house as a pile of bricks, a king's crown as metal, a book as paper, if we saw in everything merely its raw material, the great majority of objects would have few advantages over waste-paper.

A piano is not used as firewood, a locomotive as cast-iron, or paper-money for papering walls. So why, in the case of paper-money, do we speak only of the material, the cellulose ? Why do we not speak of the medium of exchange ? All other objects are considered in connection with their intended use; and paper-money thus treated, that is, regarded as the medium of exchange, is not a mere scrap of paper, but a highly important, indeed indispensable, manufactured product, the most important and useful of commodities.

That the cost of producing this article is practically nil, subtracts nothing from its importance. We do not seek in other products the sweat and blood of the producer. The building sites of Berlin, with a total value of thousands of millions, have not cost a penny to produce.

To understand paper-money, therefore, we must pay no attention to the paper of which it is made; we must accustom ourselves to think of it as an indispensable manufactured article, one, in addition, protected by the State. We shall then have no difficulty in recognising paper-money as something with all the characteristics of a ware. We shall then find it a proof, not a refutation, of the proposition that wares can be paid for only with wares.

Those who take the trouble to search the literature of monetary theory will find money constantly treated, not as a manufactured product with an exactly determined purpose (medium of exchange), but as a raw material for industrial purposes (jewellery), its function as money being regarded as merely subsidiary and transitory. Yet in many countries coins struck 100 or 200 years ago are in circulation (such coins circulated until quite recently in Germany), whereas wares a year old are, as a rule, more or less unsaleable, and are written down at a merchant's stocktaking.

If money were but a raw material for industrial purposes it would be purchased only as other wares are purchased, namely on condition that it could be passed on with the addition of interest and profit. But if the dollar already mentioned which, mined in Colorado, had circulated 10 or 20 years in China before being used to pay wages in the original mine, had on its travels been again and again loaded with interest, transport-charges and profit, what would it have cost the miner who finally received it ? Yet this loading would have been necessary if the dollar had always been bought for the silver it contained, if no one had found that it performed another service - namely the exchange of his products for consumable goods.

Money is indeed the most characteristic of wares, for money, especially paper-money, is used only as a ware, a commodity for exchange. It is not, like other wares, bought to be consumed in the factory or kitchen, that is, away from the market. Money is and remains a ware, its usefulness lies entirely in its services as a ware of exchange. All other wares are bought for consumption (except by merchants, for whom both wares and money always remain wares). A person produces wares for sale, but buys them for consumption; he sells wares, he buys consumable goods. Money alone remains a it performs the service of exchange. Money, and above ware, for all paper-money, is thus

the only useful ware.

The protagonists of a metallic standard commonly think of metal money merely as raw material for the goldsmith. A mark, says the bimetallist Arendt, is the 1392nd part of a pound of gold, and the advocates of the gold standard had naturally no reason to attack an opinion which deprived their opponent of all weapons for defence of his cause.

(* Chevalier, La Monnaie, Paris, 1866, p.36. 11 1 must hold to this fundamental opinion that coins are simply bars of metal, the weight and fineness of which are guaranteed by the State.")

The champions of paper-money, who should have begun by demolishing this fallacy, one and all evade the issue. Obviously they have not recognised with sufficient clearness that money itself, without regard to its material, is a useful, indeed an indispensable object: and so, in devising the inscription on paper-money, they all felt themselves constrained to promise the holder something independent of the function of money, gold, interest, wheat, work, land and so forth. The exchange of wares, made possible by money alone, evidently does not seem to them a service sufficient to ensure a ready market for paper-money.

The only exception known to me is the inscription on the paper-money issued in 1869 by the Province of Buenos-Aires. Here, for the first time, the paper itself is declared money, and the holder is not promised conversion. The inscription runs:

La Provincia de Buenos-Aires
reconoce este Billete por
un peso
moneda corriente, 10 Enera de 1869.

Translation: The province of Buenos-Aires recognises this piece of paper as a peso (dollar) of national money.

I have never been able to discover whether this inscription was the result of insight, or of embarrassment, like the wording of the present Argentine paper-money, which promises to pay the bearer at sight so many pesos - in paper-money ! "La Nacion pagará al portador y á la vista y por medio del Banco de la Nacion 100 Pesos moneda nacional." Clearly nonsense, since a peso mon. nac. is nothing else than the same paper peso. The bank promises to hand back the piece of paper handed in for conversion.

The following proposal has been made repeatedly and even in quite recent times: The State prints enough paper-money to buy up the whole land of the nation and thus at once solves the greatest of all social problems, the problem of how to return rents to the people. The land is then security for the paper-money, but in accordance with the aim of the proposal, is not given in exchange for the notes. The holder of the paper-money has to be satisfied with the security of the land, just as the holder of a banknote is supposed to be satisfied with the security of the gold in the cellars of the bank (which is certainly not the case, for the holder of the banknotes satisfies himself with the services performed by them as the medium of exchange. If it were otherwise, he would, like the goldsmith in need of raw material, go and fetch away the gold at once). From the standpoint of monetary technique this is a crazy proposal. Here again it is overlooked that to mediate the exchange of wares is a sufficient service for paper-money, and that if this service is guaranteed (for which it is only necessary that no other form of money should be issued), every other kind of service is superfluous.

The difficulty of grasping the notion of money lies in the fact that the service we expect from it is so completely independent of the money-material. The material is necessary only in order that money may be visible and palpable, so that we can assure ourselves of its existence and transfer it; by no means because we expect something of its material part as such. Otherwise it would be impossible for a coin to remain 1, 10 or 100 years in circulation, or for a banknote to remain 24 hours outstanding. The quantity of money alone is of importance, for upon it, partly, depends the magnitude of the supply of money and the amount of commodities that we cay buy for it. Money considered as a material has no properties, or at least no active, working properties, no properties that would be missed even if entirely absent. Why, the Germans chose gold instead of silver for their money simply because they had to yield sixteen times more commodities for one kilogram of gold than for one kilogram of silver ! They got sixteen times less money-material - that it why they preferred gold to silver !

Of every kind of goods for use, without exception, the buyer says "the more the better", but of the money-material, on the contrary, "the less the better". Money only needs to be countable: the rest is mere ballast.

We buy honey because it tastes sweet, beer because it intoxicates, lead because it is heavy, a foot-rule because it measures a certain length, a quart measure because it has a certain cubic capacity. But with money we do not ask for taste, weight, cubic capacity, or any material characteristic, or anything for the direct satisfaction of our personal wants. We buy money as a ware in order-to pass in on again as a ware.

A proof of the general indifference to the physical characteristics of money is the fact that not one person in a thousand is able to state how much fine gold he is legally entitled to demand for a dollar, a mark, a franc, or a five-pound note. The incredulous can easily test the truth of this statement.

For this reason we ask of money only that it should possess the fewest possible physical properties; for this reason mankind has gradually and unconsciously adopted as money-material a natural substance, gold, which of all substances has been most niggardly endowed with properties. How poor in properties is gold in comparison with any other product say a hammer, a book or a canary-bird ! Not for its colour, weight, bulk, ring, smell, taste or chemical affinities has gold been chosen as money. Gold neither rusts nor rots, neither grows nor decays, neither scratches, nor burns, nor cuts. Gold is without life, it is the archetype of death.

In the substance of money we seek negative, not positive, properties. The minimum of material properties is what all men demand of the material part of money. Everyone feels for the substance of money what the merchant feels for his wares, namely icy indifference. If the shadow of gold suffices, the shadow of gold is preferred, witness the existence and popularity of banknotes. The more negative the properties of a substance, the more positive its advantages as a money-material. That is the whole secret of a paper-money standard.

It is said that a universal predilection for precious metals led to their adoption as money. I believe, on the contrary, that the universal indifference of producers to gold and silver was the reason why mankind could agree to recognise these metals as money. It is easier to agree upon something indifferent, upon something neutral, than upon something possessing positive properties that vary in effect for each man according to his temperament. Of all natural products gold has the fewest properties, the fewest uses in industry and agriculture. To no substance are we so indifferent as to gold, hence the facility with which it could be adopted as money.

Gold has an industrial use in the manufacture of jewellery. But those who use money as a medium of exchange, producers, workmen, farmers, artisans, merchants, the State, the courts of justice, as a rule need no articles of jewellery. Young girls may covet gold (often only because it is money); but young girls who are not producers need no medium of exchange, they create no mercantile demand for money. The desires of young girls can hardly be allowed to determine the material chosen for money. Money, by far the most important means of economic intercourse, the essential condition of the division of labour, must have some basis other than the desires of the economically weakest members of the community - young girls with a taste for self-adornment.

The material part of money has for economic life about the same importance that the leather of a football has for the players. The players do not concern themselves with the material of the ball, or with its ownership. Whether it is battered or dirty, new or old, matters little; so long as it can be seen, kicked or handled the game can proceed. It is the same with money. Our aim in life is an unceasing, restless struggle to possess it, not because we need the ball itself, the money-material, but because we know that others will strive to regain possession of it, and to do so must make sacrifices. In football the sacrifices are hard knocks, in economic life they are wares, that is the only difference. Lovers of epigram may find pleasure in the following: Money is the football of economic life.