The labor standard of deferred payments the relative constancy of the value of money to the day's labor-has received the indorsement of many economists. They have not as a rule, however, sought to work out constructive systems for putting such a standard in operation. Ricardo declared: '

If only one commodity could be found, which now and at all times required precisely the same quantity of labor to produce it, that commodity would be of an unvarying value, and would be eminently useful as a standard by which the variations of other things might be measured. Of such a commodity we have no knowledge, and consequently are unable to fix on any standard of value.

It is frankly acknowledged by Professor Newcomb that а source of error in drawing conclusions" from average changes in prices, determined by index numbers, is introduced by the fact that "the improvements constantly being made in manufactures lead to their being really cheaper when measured in terms of human labor." The labor standard, therefore, does not represent a finality in fixing upon the standard of value. The ideal labor standard is found by Professor John B. Clark in "a labor day of enlarged power to produce and of diminished power to inflict sacrifice." The discussion of questions so largely metaphysical as the increment of sacrifice involved in labor is beyond the scope of this article, except so far as such a discussion throws light on proposed plans for a tangible monetary standard and upon the merits of such plans over the existing gold-credit system, including under the item of credit the power of indefinite expansion in the issue of metallic tokens. How well, on the whole, the existing system has conformed to the requirements of an ideal currency is thus suggested by Professor Clark.2

Views will vary as to the extent to which the gold dollar has lost in its power to purchase hours of labor. If we think that ideally it ought to lose in its power to buy hours of labor as much as it gains in its power to buy commodities, we shall unite in thinking that its actual behavior has varied comparatively little from the ideal requirements. In any case it has gained

Principles of Political Economy and Taxation, chap. 1, sec. I.

2"The Gold Standard of Currency in the Light of Recent Theory," Political Science Quarterly, Vol X (September, 1895), p. 401.

where it should have gained in its power to buy commodities measured in kind; and it has lost where it should have lost - in its power to buy average labor, measured by the hour.

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A not very different ideal is set forth with greater precision of definition by Professor Walsh:'

The aim should be, neither to make money cheaper in commodities, that is, to make prices rise, nor to make commodities cheaper in money, that is, to make prices fall, but to keep money stable in exchange-value in commodities and commodities as a whole stable in money, that is, to make the general level of prices constant, so that while the esteem-values of all commodities are happily falling with the fall in their cost-values, the esteemvalue of money shall fall neither more rapidly nor more sluggishly than the esteem-value of all commodities on the average.

Imperfect as a gold currency may be in theory, subject to the accidental fluctuations in the production of the metal and changes in the relations between the quantity of money and the volume of transactions, it is probable that it secures more perfect justice in its actual operation than would any substitute system subject to arbitrary changes upon incomplete data. Professor Walsh, while declaring that "it is believed to be within the power of government, by assuming the issuance of money, to control the exchange value of money in all things," makes no attempt to apply such a maxim in practice. On the contrary, he frankly admits that attempts to measure variations in the general exchange value of money "are still embryonic, and no attempt to apply them will probably be made for centuries to come."2 In the meantime commerce finds its own crude but effective means of guarding against such variations. Changes in the purchasing power of gold which can be anticipated play their part in determining the value of money in the wide markets of the world. Their effect is "discounted," just as circumstances which affect the value of securities are "discounted" in the stock market. As Professor Clark well says:3

1 The Measurement of General Exchange Value, p. 489.

2 The Measurement of General Exchange Value, p. 495. For the great variety of possible results upon commodities from different changes in their relation to money, vide the interesting discussion by PROFESSOR WALSH, pp. 482 ff.

3 Political Science Quarterly, Vol. X (September, 1895), p. 393.

We have to remember that the only real motive for using any multiple standard is to correct inequalities that are not now corrected by means of the nominal rate of interest. These are only such inequalities as are not foreseen by the business world. A slow, steady, and calculable advance or decline in the commodity value of metallic money would do no serious harm. A rapid, irregular, or incalculable variation in the purchasing power of it would do harm.

It lies with the prudent man of business to calculate for himself the future cost of the present debt which he incurs. Throughout the world hundreds of thousands of men, acting under the powerful stimulus of self-interest, are making these calculations. The aggregate of all their judgments comes to a center in the market for general commodities, for money, and for securities in the prices which these articles bring. That the metallic unit of the coinage will vary in purchasing power from time to time, and that it will vary most widely in the case of goods which become scarce or which are produced in excess, is a fact of which the more far-sighted take full cognizance. It is difficult to see how this foresight could be replaced to advantage by the intervention of the state to change the terms of contract for the delivery of gold, even if, as Professor Newcomb says, "the value of the dollar ought to be determined from month to month by some central authority and made known to the public." If it should be the function of the state to readjust contracts for gold, to protect individuals against miscalculations or unforeseen events, it is not apparent why such intervention should not be justified on much stronger grounds in the execution of contracts for the delivery of wheat or coal when a short crop or a strike gave a much higher exchange value to the amount called for by the contract than it was expected to have when the contract was made.

It is because money is the most exchangeable of commodities, and (because it is exchangeable for all other things) is the subject of a desire which is insatiable, that its value changes in relation to commodities. Degree of exchangeability is a vital factor in the value of commodities. Prices expressed in money register this degree of exchangeability. When building is active, 'Principles of Political Economy, p. 213.

iron is readily exchangeable into money and fetches a high price in money; when building slackens, iron is not readily exchangeable for money or for other things and its price in money falls. Money, therefore, as the measure of the ratio of exchangeability between other things, cannot be tied by artificial processes to a fixed relation to these other things without losing its usefulness as a scale of measurement of their values with reference to each other.

Mr. Jevons, in discussing his project for a tabular standard, frankly admits that the project would, "introduce a certain complexity into the relations of debtors and creditors and disputes might sometimes arise as to the date of the deed whence the calculation must be made." Not only would a "certain complexity" be introduced into the relation of debtors and creditors, but it is probable that this complexity would be so disturbing to the owners of capital that they would refuse to lend for any extended period of time without adding a large premium to protect themselves against the uncertainties of "the tabular standard." To the average man the possibility that a loan of $1,000 might be discharged by the payment of $800 or by the payment of $1,333, would appear a greater speculation than the certainty that it would be repaid in the original amount of gold. This would be the case, even if the standard operated with automatic precision in doing equity between individuals. The disposition of the human mind to regard the standard as fixed in value. would not be overcome by the action of the law-making power in declaring that debts might be settled in more or less gold than the contract called for because the value of gold in reference to other commodities had changed. It might be true in a sense that speculation would be discouraged, because it would. become infinitely more uncertain; but this very fact would put manacles upon enterprise, because the far-sighted speculator, the man embarking upon an enterprise in the belief of its ultimate success, would feel little inducement to exercise his foresight and enterprise if his profits were to be leveled down by an ex post facto application of his foresight for the benefit of other members of the community. Higher rates for the use of capital

would undoubtedly result from the inherent disposition to accept gold as representing ultimate value and the uncertainty whether a given contract was to be fulfilled in more gold or less than was originally stipulated.

It is because gold has been found, in the evolution of events, to be the best medium of deferred payments that contracts are made in gold rather than in other articles. Contracts for other commodities have usually been legal and have sometimes been made; but in the overwhelming majority of cases gold has been preferred, because it has remained the most exchangeable of commodities and its fluctuations in purchasing power have been to some extent calculable. How ingrained is the predisposition in favor of the metal which has come, through the evolution of twenty centuries, to represent the standard is well recognized by Professor Nicholson: '

In contracts in terms of money, however, what is present to the minds of the parties, it must be insisted on, is in the first place the money itself. In determining how much money to offer or accept, no doubt the parties respectively consider how the money is to be obtained and what is to be done with it (and similarly of the thing that is bought and sold ), but it is doubtful if, except in very special cases, they ever think of the general purchasing power of money even in the vaguest way . . . . Accordingly the just conclusion appears to be that in contracts in terms of money the real reference is to inoney and not to things, and that both parties know perfectly well that the money will not always have in every respect and for every purpose the same. purchasing power.

The essential defect in the projects for a commodity or labor standard of payments is the attempt to eliminate from exchanges that element of uncertainty which inevitably results from the uncertainties of demand and supply, of which metallic money is the automatic balance wheel. It is proper that the prices of commodities should fall when they are produced in excess, whether this excess in production is true of one or of many. It is proper that prices of certain commodities should rise when the supply is deficient. Only by the fall in price when the supply is in excess can production be checked, foreign purchasers attracted, and the excess thereby reduced. Only by a rise in

Principles of Political Economy, Vol. II, pp. 97, 98.