“MONEY AND PRICES.”

Hawera Star, Volume XLVIII, 16 July 1924, Page 8

“MONEY AND PRICES.”

PUBLIC LECTURE. "Some Aspects of the Money Problem. 1 . 5 was the subject of a public lecture delivered at the Borough Council Chambers on Thursday evening last bv the district tutor of the W.E.A., Mr W. A. Shear, 8.A., LL.B. The money problem, said the lecturer, was part of the wide problem of exchange. The importance of the exchange factor in the modern economic situation was the fact that in a modern society few individuals produced what they consumed or consumed what they produced. Under a system of high specialisation and division of labour exchange was absolutely essential, as was seen from the fact that a breakdown in the machinery of exchange soon brought production itself to a much reduced level, if not to a complete standstill. In early forms of society exchange was not essential, as each individual or small group was virtually self-sufficing, but exchange' had developed pari passu with the development and specialisation 'of industry. Exchange, fvhere it was voluntary, resulted in .gam to both parties equally by the transaction, but there must be an actual or anticipated gain to both or the exchange would not take place. In the normal exchange each party exchanged something that was relatively superfluous for something that was relatively necessary to him. The necessary had greater utility than the superfluous, so that there was a clear gain in aggregate utility ar enjoyment derived fro mthe consumption of goods that were the subject of an exchange. The two fundamental questions in regard to. exchange with which the economist was concerned were, first, the machinery of exchange, the problems of money credit, banking, and markets, ■and secondly, the terms of exchange—what 'forces acted and how did they come into play in determining how much of one Thing would exchange for a given quantity of another. Dealing with the mechanism of exchange, it would be found that money had developed gradually out of barter, which had been the .prevalent method of effecting exchanges among primitive ‘peoples. It was a process of direct exchange, of goods (or services) for goods .(or services). Its difficulties might be Illustrated by the case of a savage who wished to Exchange a spare canoe for a rifle. He might find many other : Avho wished to obtain a canoe, but icould not offer a rifle in exchange, nc J mMy who could offer a - rifle but were 1 unwilling to accept a canoe in exchange. His problem, then, was to find some person who both had a. rifle to dispose of and wished to obtain a. canoe. The transaction involved a double coincidence of wants. The difficulties were well illustrated in an incident related by Lieutenant V... L. ’Cameron in his book “Across Africa,” Describing the hiring of a boat: “The arrangement at the hiring was rather amusing. Syde ibu Habib’s agent ,(from whom the boat was being hired) .wished to be paid in ivory, of which I bnt I found that Mohammed nbu Salib had ivory and wanted cloth, .fetid> as I had no cloth, this did not .assist ine .‘greatly, until I heard that Mohammed ibu Gharib had cloth and wanted wire. . This I fortunately possessed. So I gave Mohammed ibu Gharib the requisite amount of wire, upon which he handed over cloth to Mohammed ibu Salib, who, in his turn, gave Syde ibu Habib’s agent the wished-for ivory. Then he allowed me to have the boat.” Several other cases .were quoted in the same connection.

Exchange obviously would he greatly facilitated if there were some third ■.commodity which each of the bartering parties was always willing to accept in exchange for anything that he wished to get rid of. When such a third commodity became generally used the stage of “money economy” had been reached. Money had been defined as ‘‘that which passes freely from hand to hand in the community in final settlement of debt or payment for commodities without reference to. the credit of the party giving it and without any intention on the part of the receiver personally to consume it, but to use it for the purpose of further exchange.” Money, then, was a commodity which by convention all people were willing to accept, not to use themselves, hut to pass on in further exchange. Suck a commodity would probably in the early stages be the principal product of the community. For instance, cattle in the case of pastoral tribes, tobacco in tobacco-using countries, and so on. The fact that cattle were a common medium of exchange in the nomad' stage was evidenced by the close connection between the words for “cattje” and “money” in most of the languages of the West. Our word “pecuniary” came from the Latin word “peeunia” (money), which had. in turn been derived from the Latin “pecus” (a flock). So, too, the hupoitant word “capital” was derived from the Latin “caput” (plural “capita’ ), a “head,” and was derived from the time when “cattle” reckoned by the “head” were the chief form of accumulated wealth. “Caput,” “capita, ’ “cattle,” and “capital” were all thus closely connected. Literary references to the time when cattle were used as money were very . common. When man ceased to he a nomad Ind settled down in permanent habitations the useful metals, iron and bronze, asserted themselves as the most estimable in his possession, and it was iff these that his money came to be made. Later the useful metals gave way to the precious metals, which had survived as the most suitable commodity for use as money. “Money”, was -a narrower term than “currency.” The currency system of most countries besides metallic or paper “money” included certain instruments of exchange which did not comp 1 ywit h. the definition given in that they either did not possess universal acceptability or were not accepted in final settlement. These latter media of exchange were called “credit currency.”

the functions of money the lecturer showed how its earliest function was to act as a medium of exchange. Money, it had been said, was as essential to the interchange of commodities as language was to the interchange of ideas. But a function of equal importance in modern times was its function as a measure and standard. . Any violent or nrolonged exhibition of instabilty in the value of money affected not only the distribution but also the creation of real for it threatened to undermine the basis of contract and business expectation on which the econoswic order was built up. That order was largely based on the institution of contract—on the fact, that is, that people enter into voluntary but binding agreements with one another to perform certain actions at a future date, for a remuneration which is fixed in terms of money at the time the agreement is made. A violent or prolonged change the value of money would sap the* confidence with which people made or accepted undertakings of this nature. The lecturer dealt in some detail with the relation between money and prices. Broadly speaking, it could be said that an increase in the quantity of money in circulation tended to bring about a corresponding rise in the general level of prices. A similar eflect would be produced by anything

which caused an increase in the velocity of circulation of money. The common notion that rapid circulation of money was necessarily a good thing for society was based upon the same error that regarded an increase in the quantity of money as a benefit to a community. Because money was used to measure wealth people tended to confuse it with wealth. But money was reallv only like a set of counters by which the real wealth was measured, and an increase in the number of counters without' a corresponding increase in the real wealth which was measured by them, though it might produce a temporary appearance of prosperity, was not to be confused with a genuine wave of prosperity. Money was only important for u hat it would procure. A change in the money unit, which was uniform in its operation and affected all transactions equally, would have no permanently bad results. If, by a change in the established standard of value, a man received and owned twice as much money as he did before in payment for all rights and all efforts, and‘if he also paid out twice as much money for all acquisitions a.nd for all satisfactions, his relative position in society would be wholly unaffected. But changes in the standard of value did not work evenly * l II hen the value of money changed it did not change equally for all persons or for all purposes. Hence such changes had produced in /the past, and were producing now, the' vastest social consequences. The lecturer dealt fully with some outstanding historical instances of curlency changes, showing their effects on conditions at the time and their similaritv to the situation recently created in some countries. In earlier times changes in the standard, of value had usually been brought about by actual debasement of the coinage, by reducing the amount of metal contained in the com, but in later years the same efiect had been produced by tho overissue of paper money. One classical example of such over-issue was the issue of notes by the Continental Congress and the individual colonies during the American War of Independence. The expression of worthlessness, “Not worth had originated with the “Continentals,” the notes issued by j.® Congress at this time. So worthless did the notes become that the strange situation arose of creditors making strenuous efforts to evade their debtors to avoid being paid off with worthless money. The natural effect of currency depieciation was to penalise creditors to the advantage of their debtors; to introduce such uncertainty into contracts that people would not readily enter into undertakings binding them for the future. As the existing economic order was peculiarly dependent upon the system of contracts" spread over time its continuance, quite apart from the assaults of its avowed enemies, was obviously bound up with a solution ,of the money problem, which would secure a stable standard of value and an efficient medium of exchange.