MONEY AND CAPITALIZATION 1. The functions of money. f 2. The standard of deferred payments.
3. Property. f 4. Wealth and property rights. f 5. Origin of capi tal; its definition. f 6. Capitalization of direct durative agents. f 7. Capitalization of indirect durative agents. f 8. Time-price without! loans. f 9. Present price and the discount on future uses.
§ 1. The functions of money. As trade among a number of traders is greatly facilitated and price is given a more exact expression when a common objective standard, money, comes into use, so a price paid for time-transfers of many kinds can be much better expressed in a common standard by the use of money.
Money is first a means of trade, a medium of exchange (For preliminary definition, see above, Chapter 7.) It is some object which has value to all men and which, because of its convenience, comes to have the most general marketability of any good. It is thus selected because of certain qualities in which it excels any other good. It is always some object con taining in the view of every one, a good deal of value in small bulk, most easily kept without physical decay and that has come, as markets develop, to be one of the goods in most trades.
The general medium of exchange is necessarily the most general price-good. As all other things are constantly ex changed for money, they can each in turn be compared with all the others in terms of money. It becomes the common denominator of prices. The price of any one thing in terms of another can be found from the money-prices' of the two.
262 This permits and cultivates habits of exacter conscious cal culation of prices both by buyers and sellers than were before (Whenever money is kept for an hour or a day, awaiting the fitting moment to complete the double exchange, it is serving the purpose of a storehouse of saving. Because of the same qualities that make it generally exchangeable (certainty of sale and physical durability) it is one of the best objects to keep for longer periods (to be saved, hoarded) against a day of need. It is a generalized means of abstinence, kept for a general purpose without choice as yet of the particular good for which it will be spent. The use of money as a storehouse of saving was more common formerly than it is now, for in advanced countries better ways than the hoarding of money are found for "laying up for a rainy day." In some meas
ure, however, even here money serves this use and in large parts of the world as in Egypt, China, India, this use is of very great importance. (A thing ceases to be money, logically viewed, the moment its owner keeps it without the purpose that it shall be spent ultimately. The typical miser is a man who has lost his reason as regards the money use, has for gotten that it is a means to an end. Whether serving as a storehouse of saving or as a medium of exchange, in either case money is to be kept only till the moment when the owner believes it will best gratify his desires. Its use thus even as a medium of exchange involves a recognition, and a more or less conscious calculation, of time-value.
§ 2. The standard of deferred payments. But this con nection with time-value is yet more important as money comes to be used more and more as a standard of deferred payments, a standard for prices over a period of time. A deferred pay ment is a payment made in fulfilment of a bargain made for goods delivered at an earlier date. It is the completion of a credit transaction. Credit means, first, trust or confidence re posed by a seller in a buyer, and hence the selling of things "on trust," in exchange for a promise of pay at a later date.
Now as money is the common price denominator, and the price of nearly all things whether they are sold for cash or on credit is expressed in money, it is the unit in which the com parison of goods is made when one chooses goods in different periods of time. It is not an absolute standard of value ; a "dollar" is not necessarily of the same value-magnitude to any one person from year to year, much less to all persons together. Money is subject to fluctuations of its own (for ex ample, those due to changes in gold production) having re markable consequences in industry which must be separately studied. But money is taken as the objective standard in bor rowing and lending to which the time-preferences of men are adjusted, as value is adjusted to price. This is to be treated under the subject of interest.