Part 4

In phrasing more complete than that of “making money,” Economics is the science of making money by earning it. Getting money without earning it is related to Economics only in a science-disturbing sense. It disturbs the normal Economic relations of effect to cause in the production and dissemination of humanly desirable objects. To realize the truth of that statement, the student need only momentarily conceive of theft as universal. Since universal theft as an Economic phenomenon would be utterly destructive of normal Economic relationships, of beneficial effects from normal causes, so must theft to any extent operate destructively to that extent. The only thinkable relation of theft to Economics is analogous to the relation of murder to the human race. That Economic study may comprise considerations of how to exclude stealing from Economic customs, does not go to prove that stealing is a factor in Economic science. It goes no farther than to prove that stealing may become an Economic parasite.

Even as a parasite, stealing could hardly have wormed its way to the Economic border line, much less across it, but for a disposition among advanced students to confuse normal Economic phenomena with arbitrary business customs.

“Business” might indeed be the nearest approach to a synonym for “Economics.” It would be an exact synonym but for one variation. Whereas Economics relates to a comprehensive social organism which (notwithstanding “scientific” contentions to the contrary) is subject to natural laws of human association (sequences of cause and effect), Business is but a limited collection of individual interests or private organizations that are influenced and largely governed by arbitrary customs. These customs may or may not be in harmony with the normal relations of cause and effect in Economics. And as to each particular business, it is operated, as accountants frankly admit, only “for the benefit of its proprietor.”

The quotation is from “Modern Business”, by Thomas W. Mitchell, Ph. D. New York: Alexander Hamilton Institute. 1918–1919.

In some of its vulgar connotations Business might very well answer to the insolent definition that it consists in the adventures of sprightly gentlemen trying to sell nothing for something to other sprightly gentlemen who are trying to buy something for nothing. In so far, however, as that definition may be appropriate, it applies only to business abuses, not to Business as a possible synonym for Economics. It defines Business only as theft might define morality.

To be a closer synonym for Economics, Business must deserve a definition relating its customs to natural Economic law (a subject to be considered in a later Lesson) and extending its functions more completely to universal mutual service. Moreover, its definition must widen the Business concept so as to include all kinds of such service. Business can no more exclude from its realm particular Business specialties, though that be customary, than it can include the operations of “confidence men,” as it is sometimes supposed to do. Its functions are not limited to commerce, nor to banking, nor to any other of those Business specialties to which careless speech, and sometimes snobbish thought, tend to narrow the meaning of the word.

Business is that function of social life which includes all serviceable specialties. Such terms as “commercial,” “mercantile,” “industrial,” “agriculture,” “labor,” “the professions,” and so on, denominate specializations or sections or subsidiary departments of Business, not Business as a whole. They are useful for subclassification; but, like all subclassifications, whether in Economics or in any other science, they are misleading when perverted into general terms for primary or fundamental or comprehensive categories. The term Business, like the term Economics, should include them all. Every kind of service necessitates busy-ness; and serviceable busy-ness, what is that but Business?

Considered comprehensively, then, and excluding parasitical adhesions, Business might be, as some advanced students of Economic phenomena suppose it to be, another name for Economics. In the scholastic sense, Economics is the more orthodox term; in the practical sense Business could better express the idea. Both terms might have practically the same meaning if considerately used. Honest Business, inclusive of all serviceable activities--service for service, to adopt a phrase in definition of Business--would be identical with Economics. Either, like the other, may be described superficially as the process of the science of making money.

Quite consistently with the foregoing survey, Economics has been described as the science of “mankind making a living.” This definition, too, excludes the solitary life by limiting Economic science to cooperative mankind--in other words, to Economic association. It, too, identifies Economics and legitimate Business; for only through legitimate Business activities can cooperative mankind make a living. It, too, excludes theft in all its forms and guises; for so much of a living as some may make by any kind of theft, others must lose as victims of theft. It, too, brings Economics on the surface and Business on the surface within the definition of “the science of making money;” for only by means of money measurements in money terms does or can mankind in the mass make its living.

But making money is only a surface fact in Economics. It is but a means to the end. By no possibility can it be rationally regarded as the ultimate object. The ultimate object of Economics is earning the living that money will buy. Both the object and the method lie below the surface of money-making. To Economics, making money is somewhat as book-keeping is to a commercial business. It is the surface expression of all underlying Economic phenomena.

Before those phenomena can be thoughtfully observed and studied, the relation to them of money-making must be keenly scrutinized and intelligently considered.

SECOND LESSON

MONEY

What is Money? and what are its functions? Money is the medium of trade, its denominations the language.

Resting on the surface of Economic phenomena, Money and Money terms spread over the whole of the Economic area. All subsurface phenomena in Economics are measured in trade by Money units; the details of trading transactions are discussed and recorded in Money terms.

Money terms vary with localities. In the United States, Money talks in terms of “dollars;” in Great Britain in terms of “pounds sterling;” in France in terms of “francs;” in Germany of “marks;” elsewhere in local terms too numerous for other than encyclopedic description. But the value measurements that Money makes of commodities in the processes of trade are everywhere, at any given time, practically the same.

For lack of stability those measurements do vary from time to time with confusing effect. To compare them with measuring rods for length, breadth and thickness, it is as if yards, feet and inches were constantly contracting and expanding with reference not only to the magnitude of measurable objects but also to one another. Precisely in that way does Money in fact fluctuate. It always has, and unless scientifically standardized, it always will.

Nevertheless, whatever the fluctuations and local discrepancies of Money may be, it everywhere talks, when its language is translated, to the same general Economic effect at any given time. Stabilized, as it might be, it would talk to the same general Economic effect everywhere and all the time.

What language is to thought, Money terms are to trade. The trading transactions of the whole world are effected by means of Money standards and in the language of universally interpretable Money terms.

Conventionally defined, Money consists of coins minted by governments from precious metals more or less alloyed. Those forms are supplemented, however, with subsidiary forms commonly known as “currency.”

There is an Economic theory that metal coins alone are Money, paper currency being but promissory notes redeemable in coin. This theory is useful for testing Money media by coinage standards. But with reference to nearly if not all purposes of current trade, the intrinsic value of the Money piece is of slight Economic importance, or would be if Money were stabilized.

What counts in Economic measurements is Money denominations--Money language rather than Money pieces. For in the world-wide processes of trade, only a slight proportion of either metal coin or paper currency passes from hand to hand. Nearly all Money measurements are entered in books of account; and in these the debits and the credits so nearly offset one another, by and large, that the difference as a whole is too slight for consideration in passing down from the Money surface of Economics to the basic facts. A common and impressive exemplification is afforded by clearinghouse statistics. These show that the enormous banking transactions in Money terms which merge at the clearings daily, are balanced off with a trifling percentage of tangible Money.

Let the fact be emphasized then, that in defining Money as the medium of trade, Money terms rather than Money forms are to be understood as the trading medium.

When a customer at a retail store buys a supply of groceries, his payment may be made in Money pieces, either metal or paper. Yet it may be made instead with a check drawn against his bank balance, or through a charge to his account in the retailer’s books. If paid in Money pieces, either at the time of purchase or later, some if not all of those pieces will go to the storekeeper’s bank and be credited to him in Money terms on the books of the bank. If the payment be made by check, the amount of the check will be entered in the storekeeper’s bank account as if it were a payment in Money pieces instead of Money terms. Be such transactions as they may, however,--cash payments or check payments or drafts or promissory notes--tangible Money plays on the whole but a small part.

From purchases by customers at retail stores back to wholesalers; back of wholesalers to manufacturers of finished products and of unfinished products and of tools and of every other kind of merchantable object; back to land-owners for the sources of supply and the sites for production and delivery; back to farmers, to miners, to transportation agencies, to a vast though scattered army of wage-workers; through many a complicated series of accounts at stores, factories, mines, real-estate offices, railway and steamship offices, banks, clearinghouses--must we wend our way if we would investigate the processes of trade in detail. Yet only in slight degree do those processes involve the use of Money forms. Though coinage standards play their part, almost all trading transactions are made in Money terms and not with Money pieces.

In the process, then, of making a living, mankind trades commodities in terms of Money rather than in its forms, doing so principally through financial accounts. Peering into the details of those accounts (as professional accountants and other business specialists must often do when examining the particulars of their respective specialties), however useful this may be within the limits of the specialization, is always futile and often confusing or misleading for purposes of Economic study or investigation as a whole. In Economics the purpose is not to understand the technical details of business specialties simply. It is chiefly to relate those details to one another by determining their respective Economic categories so that the whole subject may be reasoned about comprehensively.

Some business specialties may necessitate a knowledge in detail of the physical characteristics of sugar, for instance, or of cotton; but what an understanding of the science of Economics requires in such particulars is an intelligent grasp of the nature of sugar or cotton with reference to fundamental Economic categories--whether they are human, or natural, or artificial,--and to what extent, therefore, they are Economically related to all other commodities in the realm of trade. For into one or the other of those three categories, all the myriads of Economic details assemble themselves.

For purposes of Economic specialization, this assignment of details to categories is not enough; but without it no specialization is dependable. Some such identification of particular facts with reference to their fundamental differences or identities, is absolutely necessary for accurate observation of Economic phenomena and clearness of Economic thought; and are not accurate observation and clarity of thought the prime requisites of Economic study?