November 5, 2024
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The Foundations of Political Economy: Theories of Commodity and Money

This is the fourth and final part of a series of articles that briefly summarizes Carl Menger's work, Foundationspolitical economy. ” It covers the sixth, seventh and eighth chapters of the book and builds a theoretical foundation around goods and money.

Chapter VI - Consumer and Exchange Value

1. The essence of consumer and exchange value

When people better understand their economicinterests and begin to exchange goods, a situation arises in which the possession of a certain economic good gives its owner the opportunity to acquire any other goods through exchange. When this happens, it is no longer necessary to have at your disposal any specific benefits that are directly necessary to meet specific pressing needs.

As we know, in order to be of some value,a good must satisfy those needs that would remain unsatisfied in the absence of this good. But no matter how it happens,directorindirect(through exchange for another good), in principle it does not matter when the very existence of value for this good is in question. We call the value in the first caseconsumer, and in the second –exchange.

2. The relationship between consumer and exchange value of goods

In the economy of isolated households, the economic benefits for all business entities that own them either have use value or do not represent value at all. But even in a society in whichtrade, one can notice economic goods that do not represent exchange value for the economic entities that own them, while the use value of these goods for them is beyond any doubt. Menger gives several examples of such goods: the crutches of a severely crippled person, notes that can only be used by their author, family documents and many other similar goods. In a developed society, relationships of the opposite nature are often observed. Glasses and optical instruments stored in the warehouse of an optical goods dealer, as a rule, do not have any use value for him, just as surgical instruments do not have any for those who produce and sell them, just as books on the market do not have any for booksellers. foreign languages ​​understood only by a few scientists. But all these goods undoubtedly have exchange value for the above-mentioned persons.In all cases when the good has both consumer and exchange value for its owner, the economic value will be the one that is most important for him.

3. Changes in the economic “center of gravity” of the value of goods

One of the most important challenges facingeconomic entities, is the identification of the economic value of goods - that is, the definition of which of the two, consumer or exchange value represents economic value for them. Obviously, everything that contributes to a decrease in the usable value of the good for us can lead to the exchange value becoming economic value, and everything that increases the use value, in turn, can put its exchange value in the background. An increase or decrease in the exchange value of a good can lead, ceteris paribus, to the opposite effect. The main causes of changes in the economic form of value according to Menger are:

(1)Changes in importance for the business ownerthe subject who owns the good, to satisfy certain needs that the good serves, since this causes an increase or decrease in the use value of the latter. For example, if a person loses his taste for consuming tobacco or wine, then his existing stocks of wine or tobacco will acquire exchange value for him as predominant.

(2)Changes in the properties of a good can change the centerthe severity of its economic importance to the owner if its use value also changes as a consequence, while its exchange value either remains the same or also increases or decreases, but not as significantly as the former. As an example, Menger mentions that dresses, horses, dogs, carriages and the like generally lose their use value entirely to rich people if any defect is found in their appearance.  And although their exchange value also decreases, it becomes more important, since the loss in use value is more important for such people than the decrease in their exchange value. Another example is that restaurateurs or grocery sellers may use food products, the appearance of which may have some kind of flaw, for their own consumption, since such goods almost completely lose their exchange value, while the use value often remains unchanged, or is not reduced as much strongly.

(3)Changes in the quantity of goods at disposaleconomic entities can undoubtedly shift the emphasis of the economic significance of the value of these very goods. An increase in the amount of goods available to a person almost always leads to a decrease in the use value of each unit of good for him, and the exchange value, on the contrary, becomes more important. If the quantity of a good decreases, the opposite relationship occurs. Example: For the first orange available, use value will often be dominant, while for the tenth, exchange value is likely to be dominant, and thus may be exchanged for an apple, even if the person prefers oranges to apples.

Chapter VII - The Doctrine of the Product

1. The concept of "product" in the ordinary and scientific sense

In the economy of an individual householdproductive activity is aimed only at the production of goods needed for their own consumption. In view of the peculiar nature of this form of management, the production of goods for subsequent exchange is naturally excluded. It goes without saying that the division of labor within an isolated household remains very limited.

Menger argues that it can be considered that the peoplemade its first step in economic development, when people who have acquired a certain skill, offer their services to society and process the raw materials provided by other people for a fee. For example, a craftsman can take pieces of clay from his customers and make clay cups for them for a fee. A new step on the path of economic development can be considered a situation where artisans themselves begin to purchase raw materials for their products, even if they still produce goods by order of consumers.

Custom production takes time,and this circumstance led to the manufacture of goods in stock for possible sale in the future. Returning to our example, the artisan will have a stock of cups in stock in order to be able to satisfy customer requests immediately as they arise. This method of providing for society leads toultimately, on the one hand, to factory production, and on the other, to consumer purchase of finished (confectionery) goods. Such articles which are kept ready for sale by the manufacturer or intermediary trader are calledgoods. In its generally accepted meaning, the use of this term is usually limited to movable material goods (with the exception of money).

The higher the level of development of civilization,achieved by the people, and the more narrowly focused the production activity of each economic entity becomes, the more often there are grounds for the emergence of economic relations for the exchange of goods between economic individuals, and the greater becomes the absolute and relative amount of these goods that at any moment havecharacteristicsgoods.Until, ultimately, the economic benefits that can be derived from the implementation of these relations become significant enough to give rise to the emergence of a special class of economic entities that engages in exchange transactions in the public interest, and who receive compensation for this in the form of a share of the profits from the trade . These are, of course, traders and merchants, and in current realities — just shop owners.

The nature of the goods is not something inherent to any good by default, not some quality of it, but just a special relation of the good to the person at whose disposal this good is.  A good loses its commodity essence ifthe economic entity that owns it abandons the intention to get rid of it, or this good falls into the hands of people who do not plan to subsequently exchange it, but intend to use it for their own use. Menger gives several examples to explain this relationship: a hat and silk cloth offered for sale by a hatter and a draper in their shops are examples of goods. But they immediately cease to be such if the hatter suddenly decides to use the hat himself, and the fabric merchant decides to present silk fabric as a gift to his wife. Packets of sugar or oranges are goods in the grocery store, but they lose the character of goods as soon as they pass into the hands of consumers. Therefore, commodity character is not some special property of goods, but, as usual, is onlytemporary connectionbetween goods and economic entities.Once they reach their economic destiny, they cease to be goods and become commodities. But in cases where this does not happen, as is often the case, for example, in the case of gold, silver, etc., primarily in the form of coins, they continue to be “goods”.

Based on this, according to Menger, two conclusions can be drawn:(1)The often stated statement that money is a “commodity” does not explain at all the unique position of money among goods;(2)the point of view of those who deny the commodity naturemoney, since "money as such, especially in the form of coin, serves no purpose of consumption" is untenable simply because the same argument could be made against the commodity character of all other goods, even if we were to ignore the fact that there is a fallacy the idea of ​​an important function of money, which is the assumption that it is not consumed.

2. Suitability of goods for sale

A. External factors limiting the sales of goods.

From Menger’s point of view, the sales of goods (the ease with which a product can be bought and sold) is limited by four factors:

(1) Their feasibility is limited in relation to the circle of persons to whom goods can be sold.The owner of the goods will not be able to sell them to anyoneperson of his choice. There is always a certain circle of economic entities to whom only the goods can be sold. The owner has no chance of selling his goods to those people who do not feel any need for them, as well as to those who, due to legal or physical reasons, are deprived of the opportunity to purchase them, and also to those who simply do not know about the opportunity for exchange, and, finally, to anyone for whom the quantity offered of the commodity in question does not represent the equivalent of a greater quantity of the good given in exchange for it than for the original owner of the commodity. Menger compares the number of people to whom bread and meat can be sold with the number to whom astronomical instruments can be sold. Or the number of people who buy wine and tobacco with the number of people who buy works in Sanskrit.

(2) The marketability of goods is limited to the geographical area where they can be sold.. In order to sell goods in anylocality, it is necessary that two conditions are satisfied: (a) there should be no physical or legal obstacles to the transportation of this product to this locality and its sale there, and (b) that the costs and expenses associated with transportation do not exceed the benefits that may be derived from the expected exchange opportunity. Such cheap, but rather heavy goods, such as timber, may be unprofitable for transportation to the market, which is very far from its place of origin.

(3) The sales volume of goods is quantified. According to Menger: A publisher of an essay on Tupi Indians can expect to sell, say, 300 copies at a reasonable price per book. But even with a minimum price, its sales will not exceed 600 copies. Popular science publications, by contrast, can achieve sales of 20-30 thousand books or even more.

(4) Finally, the marketability of the goods also depends on the time intervals during which their sale is possible.. The need for some goods arises onlyin winter, for others - demand appears only in summer. Menger gives several examples of benefits of this kind: printed programs of upcoming festivals or catalogs of exhibitions of paintings and even, in a sense, magazines and fashion items. In fact, all perishable goods are, by their nature, limited to a short period of sale. To this we must add that the storage of a stock of goods in a warehouse usually also imposes significant economic costs on their owner. The effect of warehouse fees, costs of safekeeping, etc., exerted on the limited availability of goods in time is similar to the effect of the cost of transporting goods and other transport costs on the territorial restrictions on their sales.

B. Different degrees of sales of goods.

As we have already found out, goods are economicgood for sale. The owner of the goods intends to sell it, but not at any price. The owner of a watch store, according to Menger, could sell his entire assortment in almost any situation you could imagine if he were ready to sell watches at a fairly low price. A leather merchant could also quickly get rid of his stock if he were ready to sell leather goods at prices that were devastating for himself.

Bazaars, fairs, exchanges, periodical publicauctions (such as in large seaports) and similar public institutions have as their goal the unification of all persons interested in assessing the value of goods in a certain place to ensure the establishment of an economically advantageous price. Therefore, goods for which a regulated market exists can usually be easily sold by their owners at prices consistent with the general economic situation. Conversely, goods that do not have well-organized markets are often sold at inconsistent prices, and sometimes they cannot be sold at all.

The first reason for differences in the ability of goods tosales, which we have already witnessed, is the fact that the number of persons to whom goods can be sold is sometimes large, and sometimes less, and that places of concentration of persons interested in setting the price of goods are sometimes better, and sometimes worse organized.

The second reason for differences in the sales of goods is the geographical factor. That is, the area of ​​sale of goods may be narrower or wider. Also, for some products there may be massshops selling them at economically attractive prices, and for others - only a few outlets. Owners of goods from the first category can sell them at their discretion in many places at competitive prices, while owners of goods from the second category can only sell them in a few places with a limited sales market in a narrow trading zone.

Thirdly, in relation to some goodsThere is a lively and correctly set speculative trade. It absorbs any quantity of such goods that appears on the market, whenever they appear. On the contrary, in the trade turnover of other goodsspeculation either does not take place at all, or is present, but to a much lesser extent, so that when there is an overabundance of the supply of such goods, either their prices drop very quickly, or they are taken to unsold stores. Goods of the first kind can always be sold in any quantity with small concessions in price, while owners of goods for which there is no speculative trading are either not at all able to sell it in quantities that exceed the current market demand, or they still sell it, but only with very large losses.

And finally, there are goods for which there are almost continuously operating markets. Securities and a number of commodities can be sold every day in places where commodity exchanges exist.. However, there are goods of a different kind, tradewhich happens only two or three days a week. Weekly grain markets, quarterly fairs for industrial goods, and several so-called annual fairs for horses and other livestock, etc. are also usually held.

C. Means of circulation of goods.

In previous sections, Menger explained the general andspecific reasons for differences in sales of goods. At this stage, one would be inclined to think that the problem of greater or lesser ease with which goods can pass from hand to hand has already been solved, since the passage of goods through several buyers simply consists of a number of separate transactions. It could also be assumed that a product that can be easily transferred from the hands of its owner to some other business entity should just as easily pass from the hands of the second owner to the hands of the third, etc. However, as practice shows, this does not apply to all products.

Some products have almost the samefeasibility in the hands of any of the business entities. Menger gives gold nuggets as an example. They can change owners without any loss of marketability. Selling some other products may require special knowledge, skills, permits, or government licenses, authority, etc. Therefore, an economic entity that has not fulfilled the necessary conditions listed above, simply cannot trade such goods.

Ultimately, it is clear that goods, circlewhose consumers are quite small, whose geographical sales area is limited, which can only last for a short time, etc., are deprived of freedom of circulation.In this regard, we conclude that forIn order for the product to circulate freely, it must have the ability to sell in the broadest sense of the concept for each of the business entities through whose hands it passes. Moreover, realizability is not in one aspect, but in all four of the above signs.

Chapter VIII - The Doctrine of Money

1. The nature and origin of money

In the early stages of trade, whenbusiness entities are only beginning to gradually realize the economic benefits that can be obtained through exchange opportunities, their attention is directed only to the most obvious of such opportunities. When considering the benefits that he will gain as a result of trade, each person takes into account only their use value for himself. Consequently, the actual exchange operations are limited to scenarios when some business entities have some goods in their possession whose use value is less than the use value of goods held by other business entities that have the opposite opinion about the value of the same goods for themselves. Menger gives the following example: A. has a sword that has less use value for him than the plow that B. has. At the same time, B. has his sword with less use value than the sword that A. holds. In the beginning, all actually carried out exchange operations are limited to cases of this kind.

It is easy to see that in realitythe number of exchanges made under these conditions will be very limited. And how often do such coincidences occur when a certain good that one person has is valued less by him in terms of consumption than some good that is held by another, who at the same time evaluates them in exactly the opposite way? And even if there is such a situation, how likely is the probability that the two individuals will nevertheless meet to make an exchange? For example, A. has a fishing net, which he would like to exchange for a certain amount of hemp. And in order for such an exchange to take place, it is not only necessary to find another business entity, say B., who would be ready to exchange the requested amount of hemp for A.'s fishing net, but also so that these two business entities meet each other.

To further illustratethe difficulties described above, Menger gives another example. Suppose that a blacksmith from the era of Homer made copper armor and wants to exchange them for copper, fuel and food. He goes to the market and offers his goods in exchange for the desired benefits. He would undoubtedly be very pleased to meet people there who want to buy his armor, and at the same time, have for sale all the raw materials and products that he needs. But this, obviously, is a mere coincidence among a small number of people who want at any time to purchase such a specific product, like armor, precisely those who offer exactly the product that he needs. On the contrary, the possession of other goods would greatly facilitate his search for people offering the goods he needed. At the time of Homer, according to Menger, cattle were often the best-selling of all goods. Thus, even if the gunsmith was already sufficiently provided with cattle for his direct needs, he would have acted uneconomically if he had not sold his armor for some additional number of cattle, which he could then use to purchase the goods he needed.

As each business entitybecoming more aware of his economic interests, he begins to be guided precisely by them, without any agreement, without coercion at the legislative level, and even without taking into account public interests, in order to give his goods in exchange for other, more sold goods, even if he does not need them to satisfy any of their immediate needs. Thus, with the development of economicrelations, we can observe the following interesting phenomenon when certain types of goods, especially those that are most easily sold at any time and in any place, become accepted by everyone in the process of trade, and, accordingly, can be given in exchange for any other goods.We call these economic benefits money..

Within a state, the legal system is usuallyhas an impact on the monetary nature of goods, although small, but which cannot be denied. The origin of money (unlike coin, which is only one of the varieties of money) is, as we have already seen, entirely natural, and therefore shows itself subject to the influence of legislation only in exceptionally rare cases.Money is not an invention of the state. This is not a product of lawmaking.. For their existence is not even requiredofficial permission from political authority. Certain goods assumed the role of money in a completely natural way, as a result of economic relations independent of state power.

2. The types of money inherent in different peoples in different historical periods

As we have already found out in the course of our reasoning,money is neither the result of an agreement between business entities, nor the product of legislative acts. They are not someone else's invention. As business entities became aware of their economic interests, they everywhere came to the realization that the exchange of goods with a lower ability to sell for goods with greater sellability brings them closer to meeting their urgent needs. Thus, thanks to the progressive development of the economy, money appeared in many civilizations independently of each other.

In the earliest periods of economic development,livestock was apparently the best-selling commodity among most peoples of the ancient world. Livestock formed the basis of the wealth of nomads and peoples, moving from a nomadic way of life to an agricultural society. The trading and commerce of the ancient Greeks left no trace of the minted money until the Homeric times. The exchange nature of trade still prevailed. Herds were the wealth of people, payments were made by cattle, it expressed the prices of goods and levied fines. Menger also provides several other examples of the use of livestock as money.

The gradual formation of cities in whichinhabited by a population primarily employed in industry, should have led to a simultaneous decrease in the market attractiveness of cattle and an increase in the salability of many other goods, especially the metals used. A craftsman entering into an exchange of goods with a peasant could, of course, accept livestock as payment, but in very rare cases, and then only as an exception. For a city dweller, even temporary ownership of livestock brought not only inconvenience, but also significant economic costs, such as the cost of maintaining and feeding it.Cattle gradually became obsolete as the best-selling product, then as an economic form of cash, and eventually ceased to be money in general.

Among the metals, which at first were predominantlyprocessed by people because of their ease of extraction and malleability, there were copper, silver, gold, and in some cases iron. The transition to the new money proceeded quite smoothly when the need arose, since metal products and the raw metal itself in bullion were undoubtedly already widely used as money, along with livestock, for making small payments.This transition, of course, did not happen instantly.and not the same for different nations. In parallel with the newer standard of metallic money, the old one that used livestock as money was used for a long time before the new standard completely displaced it from circulation.

That, for example, salt and slaves in CentralAfrica, wax tiles in the upper Amazon, cod in Iceland and Newfoundland, tobacco in Maryland and Virginia, sugar in the English West Indies, ivory in the vicinity of the Portuguese colonies, took over the functions of money, due to the fact that all these benefits formed the basis export to these places. Due to this fact, they, like furs among hunter tribes, have gained significant market attractiveness.

Thus, money appears before us intheir various forms in place and time, not as the result of any agreement, legislative compulsion or mere chance, but as a natural product of differences in the economic position of different peoples at the same time, or of one people at different periods of its history.

3. Money, as a “measure of prices” and as the best economic form of accumulation of exchange values

Since the progressive development of trade andthe functioning of funds creates an economic situation in which goods of all kinds are exchanged for each other, and due to the fact that, under the influence of competition, the borders at which prices are formed become narrower, it was rather easy to get the idea that all goods in a given place and at this time they will be in certain price relationships with each other, on the basis of which they can be exchanged for each other at will.

Talking about price theory, however, Menger showedthat nowhere else in the human economy can we find equivalents to benefits in the objective sense of the term, and that the whole theory that represents money as a “measure of the exchange value” of goods turns into nothing, since the very foundation of the theory is erroneous.

Indeed, different economic goals inpractical life have caused the need for a more accurate determination of value, especially its assessment in monetary terms. In cases where only approximate accuracy of estimates is required, average prices may appropriately serve as the basis of assessment, since they are generally the most appropriate for this purpose.  But it is obvious that this method of valuing goods must prove completely insufficient and even incorrect wherever a higher degree of accuracy is required. When an accurate estimate of the value of a benefit is required, three points should be considered, depending on the intentions of the person making the estimate.  He should focus his attention on the following problems: (1) identifying the price at which certain goods can be sold if they appear on the market, (2) determining the price at which goods of a certain type and quality can be bought on the market, and (3 ) the amount of goods or the amount of money that would be equivalent in the eyes of this particular person to some good or, more precisely, the amount of this good.

The basis for the first two assessments may beserve the foregoing. Pricing always occurs between the two extremes, the lowest of which can be called the price of demand (the price at which the goods want to buy on the market), and the highest - the price of supply (the price at which the goods are offered for sale on the market). The first price, as a rule, will be the basis for the first assessment, and the second for the second. The third assessment is more complicated, because here we must take into account the special position occupied in the economy of the corresponding economic individual by the good or a specific amount of good, the equivalent of which (in the subjective sense of the word) needs to be determined.

Although the theory of "exchange value" in general and howa necessary consequence, the theory of money as a “measure of exchange value”, in particular, should be declared insolvent after all that has been said. A study of the nature and function of money, however, teaches us that the various assessments we just discussed are, for the most part, the most advisable to make in monetary terms. The purpose of the first two assessments is to determine the amount of goods for which one could buy or sell a product at a given market and at the moment. And this amount of benefits, if the alleged transactions are actually realized, will be money. Knowing the amount of money for which a product can be bought or sold is, of course, the immediate goal of the economic task of valuing.

If we summarize what has been said, then we can concludethat a commodity that has become money is also a commodity in which the estimated value meets the practical tasks of economic entities and in which it is most advisable to accumulate funds for subsequent exchange. Metal money largely meets these challenges. However, it seems equally obvious that the functions of the “measure of value” and the “repository of value” should not be attributed to money as such, since these functions are simply random in nature and are not an essential part of the concept of money.

4. Coin

From earlier discussions about the nature andThe origin of money implies that precious metals naturally became the economic form of money in civilizations. But the use of precious metals for monetary purposes is accompanied by some disadvantages, the elimination of which had to be undertaken by economic entities.The main disadvantages associated withthe use of precious metals for monetary purposes is: (1) the difficulty of determining their authenticity and degree of purity (test) and (2) the need to separate solid material into parts for each specific transaction, respectively. These difficulties cannot be easily overcome without loss of time and other economic costs.

Validation of precious metals andthe degree of their purification requires the use of chemical reagents and special skilled labor, since it can only be carried out by specialists in this matter. The work of dividing metal bars into smaller pieces of a certain weight, required for each particular transaction, is an operation that, due to the necessary accuracy, not only requires highly skilled labor, time costs and precision tools, but also is accompanied by no less significant loss of the most precious metal (due to the loss of metal filings and as a result of repeated melting).

It seems that the first of these two problems,determining the degree of purity of the metal was of paramount importance to economic entities. The stigma placed on a metal bar by a civil servant or some other reliable person did not guarantee the weight of the bar itself, but the degree of purity of the metal, thereby freeing its owner from the burdensome and expensive assay when transferring metal to other persons who checked the accuracy stamp. A metal with such a print of the sample still had to be weighed, as before, but its purity no longer required any checks.

In a number of cases that occurred simultaneouslysome economic entities, apparently, came up with the idea to designate in the same way the weight of pieces of metal and from the very beginning to divide the metal into pieces, on each of which the weight of the metal and the sample would be reliably applied. Naturally, this was best done by dividing the precious metal ingot into small pieces that fit the needs of the trade and marking the metal so that no significant part could be separated from the pieces without immediately catching the eye. This goal was achieved by minting metal, and this is how our coins appeared.

As a result of this, usually governments tookcommitments to mint coins necessary for trade. But they so often abused their power so much that business entities, over time, almost forgot about the fact that a coin is nothing more than a piece of precious metal of a certain weight and sample, the correctness of weight and purity of which is guaranteed by dignity and honesty mint. There were even doubts as to whether money was a commodity at all. And moreover, in the end they were declared something completely fictitious, relying solely on the convenience of human use. The fact that governments treated money as if they were in fact only a product of the convenience of people in general and their legislative arbitrariness in particular, to a large extent contributed to the further spread of misconceptions about the nature of money.

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