Oxen, according to Smith, were money among the Greeks; tobacco among the Virginia colonists; dried cod in Newfoundland; and sugar in the West Indies. Such assertions are absurdities on their face. The use of all such articles in exchange, the one for the other, is simple barter, and can never be any thing else. An ox that is exchanged for a certain quantity of sheep is no more rendered money by such act of exchange than it is converted into the sheep. To call sheep or oxen, or tobacco money, is to say that oxen are sheep, or tobacco is gold and silver. They never were used as money, and they never can be used as money. Money is the universal equivalent, always accepted at its cost, for whatever a person has to sell. There can be no other definition of it. All other articles may or may not be accepted as such equivalents. A person who has an ox for sale will take nothing but money, unless he wishes to deal in simple barter, which is the exception, not the rule. He would gain nothing by exchanging it for a horse, or for sheep. He could barter his ox now with much less difficulty than in ancient times. He might not find it very difficult to dispose of its various parts, in such cities as New York and London, for such articles as he might wish to acquire. But had all parties possessed of merchandise no other modes of effecting their exchanges but those in kind, society would be speedily remitted to its original condition of barbarism. It may often happen that oxen, tobacco, codfish, and sugar may be largely received in exchange for what a person has to sell, to be held by him till they can be converted into money, just as they were produced to be converted into money. It makes no difference to their possessor whether they are acquired at first or second hand. The object is the same in either case. Their acceptance in barter does not make them money. A country shopkeeper may barter a portion of his stock for produce, which he transports to market, and there converts into money. But this process does not make either the goods money, or the produce money. He may "make

money," as the phrase is, or he may be ruined by the fall of that for which he exchanges his goods. He can never tell the extent of his losses or profits till he has converted that which he has received into money.

The radical error, however, of Smith, with all his school, was

the distinction which he made between money (gold and silver) and capital. "In all countries," he tells us, "men seem, at last, to have been determined, by irresistible reasons, to give preference for this employment to metals above every other commodity. Metals cannot only be kept with as little loss as any other commodity, but they can likewise, without loss, be divided into any number of parts; as, by fusion, these parts can easily be reunited again, a quality which, more than any other quality, renders them fit to be the instruments of commerce and circulation." The intrinsic value of money (gold and silver), depending upon a preference which universally prevails for them, together with the regularity of their supply, -qualities by virtue of which they serve as money,— Smith wholly overlooked. With him their divisibility and capacity to be reunited, not their value, chiefly fitted them to serve as such. In this distinction between money and capital, Smith implicitly followed Aristotle and Hume; and he has been implicitly followed by all subsequent writers in the assumption, that even the most worthless articles may serve as money, and be maintained at the par value of coin, provided they do not exceed in amount that necessary to effect the exchanges of the community using them.

From the distinction made between money and capital, it was natural that Smith should consider coinage as an essential

quality of money. "It has been found necessary," he says, "in all countries that have made any considerable advance toward improvement, to affix a public stamp upon certain quantities of such particular metals as were in those countries commonly made use of to purchase goods." He was either ignorant of or overlooked the fact, that coinage was wholly unknown to the great nations of antiquity, the Egyptians, Chaldeans, and Phoenicians. All history bears witness to the vastness of their commerce and wealth. Coinage is a very valuable contrivance; but, in all great transactions at the present day, coins pass by weight, not by tale. In this way they pass at their actual, not at their denominational, value. The ancients were unquestionably experts in the refining of metals, and had all the means necessary for ascertaining their value by their weight.

As Smith made a wide distinction between money and capital, yet, as money was the standard by which all other articles were measured, he was necessarily driven to another distinction, equally absurd, that of the real and nominal prices of commodities. Labor was the measure of their real value or price; money, of their nominal value. To use his own words:

"But though labor be the real measure of the exchangeable value of all commodities, it is not that by which their value is commonly estimated. It is often difficult to ascertain the proportion between two different quantities of labor. The time spent in two different sorts of work will not always alone determine this proportion. The different degrees of hardship endured, and of ingenuity exercised, must likewise be taken into account. There may be more labor in an hour's hard work than in two hours' easy business; or in an hour's application to a trade which it cost ten years' labor to learn, than in a month's industry at an ordinary and obvious employment. But it is not easy to find any accurate measure, either of hardness or ingenuity. In exchanging, indeed, the different productions of different sorts of labor for one another, some allowance is commonly made for both. It is adjusted, however, not by any accurate measure, but by the higgling and bargaining of the market; according to that sort of rough equity, which, though not exact, is sufficient for carrying on the business of daily life. Every commodity, besides, is more frequently exchanged for, and thereby compared with, other commodities than with labor. It is more natural, therefore, to estimate its exchangeable value by the quantity of some other commodity than by that of the labor which it can purchase. The greater part of people, too, understand better what is meant by a quantity of a particular commodity than by a quantity of labor. The one is a plain, palpable object; the other is an abstract notion, which, though it can be made sufficiently palpable, is not altogether so natural and obvious."

The preceding paragraph refutes his own cardinal proposition, that labor is the proper measure of values. While assuming that labor is the measure of value, it is impossible, Smith tells us, that it should be a measure of value, for the reason that one hour's labor of one man may have a value equal to ten hours' labor of another man similarly employed; and that, consequently, the true measure of value cannot be the conventional one,—that the true measure of value is an

1 Wealth of Nations, Book i., Chap. v.

abstract notion, that the conventional measure is a plain, palpable object. How can there be abstract measures of any thing? What is an abstract foot, yard, pound weight, dollar, or an abstract quantity of labor? All these are concrete, real things. Abstractions are not the subjects which men buy and sell. Why not accept the fact as proving what That Smith in a single paragraph could assert a law, and at the same time show no such law to be possible, is evidence of such a want of the reasoning faculty as to throw a well-grounded distrust over all his conclusions, no matter the questions of which he may treat.

it does prove?

"When barter ceases, and money becomes the common instrument of commerce, every particular commodity is more frequently exchanged for money than for any other commodity. The butcher seldom carries his beef or mutton to the baker or brewer, in order to exchange them for bread or for beer; but he carries them to the market, where he exchanges them for money, and afterwards exchanges that money for bread or for beer. The quantity of money he can get for them regulates, too, the quantity of bread or beer which he can afterwards purchase. It is more natural and obvious to him, therefore, to estimate their value by the quantity of money, -the commodity for which he exchanges them, than by that of bread and beer, - the commodities for which he can exchange them only by the intervention of another commodity; and rather to say that his butcher's meat is worth threepence or fourpence a pound, than that it is worth three or four pounds of bread or three or four quarts of small beer. Hence it comes to pass, that the exchangeable value of every commodity is more frequently estimated by the quantity of money than by the quantity either of labor or of any other commodity which may be had in exchange for it." 1

"When barter ceases," says Smith, "money becomes the common instrument of commerce." Barter never ceases. There is an incomparably greater amount of barter in a civilized than in an uncivilized age, - when there are butchers and bakers than before. The exchange of money for bread or beer is just as much an act of barter as an exchange of bread for beer. As equal values are exchanged when money is used, that for which it is exchanged is just as much the instrument of commerce as the money. With Smith, however, money was not the subject, only the instrument, of commerce, like the yardstick or the railroad car, the value of which bears no

1 Wealth of Nations, Book i., Chap. v.

relation to the value of the articles to be measured or transferred. To be the subject of commerce, it must, like all other subjects, have a real equal to its nominal value. Figures are the instruments, not the subjects, of commerce. So, with Smith, money was the instrument, not the subject, of commerce. It had value; but it was not chiefly by means of that value that it served as a medium of exchange.

From the discussion of the distinction between real and nominal prices, Smith proceeds to show its importance in practice.

"Gold and silver, like every other commodity, vary in value; are sometimes cheaper and sometimes dearer, sometimes of easier and sometimes of more difficult purchase. But as a measure of quantity, such as the natural foot, fathom, or handful, which is continually varying in its own quantity, can never be an accurate measure of the quantity of other things; so a commodity which is itself constantly varying in its own value can never be an accurate measure of the value of other commodities. Equal quantities of labor, at all times, may be said to be of equal value to the laborer."

"When a landed estate, therefore, is sold with a reservation of perpetual rent, if it is intended that this rent should always be of the same value, it is of importance to the family in whose favor it is reserved that it should not consist in a particular sum of money. ... Rents which have been reserved in corn have preserved their value much better than those which have been reserved in money, even where the denomination of the coin has not been altered. By the 18th of Elizabeth it was enacted, that a third of the rents of all the college leases should be reserved in corn, to be paid either in kind or according to the prices at the nearest public market; the money arising from this corn rent, though originally but one-third of the whole, is in the present time, according to Blackstone, commonly near double what arises from the other twothirds. The old money-rents of colleges must, according to this account, have sunk to almost a fourth part of their ancient value, or are worth a little more than a fourth part of the coin which they were formerly worth. But, since the reign of Philip and Mary, the denomination of the English coin has undergone little or no alteration. This depreciation, therefore, in the value of money rents of colleges has arisen altogether from the depreciation in the value of silver (money). A rent, therefore, reserved in corn is liable only to the variations in the quantity of labor which a certain quantity of corn can purchase; but a rent reserved in any other commodity is liable not only to the variations in the quantity of labor which any particular quantity of corn can purchase, but to the variations in the quantity of corn which can be purchased by any particular quantity of that commodity.