of wheat, a pair of shoes, a coat, and a pound of sugar, or by the figures 100, 20, 10, and 1000, representing the number of bushels of wheat, pairs of shoes, coats and pounds of sugar exchangeable respectively for one ox. C's expression for the relative values of wheat, cattle, coats, and sugar would be the figures 1-5, 20, 2, and 1-50, representing the number of pairs of shoes and fractions of pairs exchangeable respectively for a bushel of wheat, an ox, a coat, and a pound of sugar, or the figures 5, 1-20, 1-2, and 50 representing the amount of wheat, cattle, coats, and sugar equivalent in value respectively to one pair of shoes. Under the same conditions of value, D who has only coats for trading, would have to pay for a bushel of wheat 1-10 of a coat, for an ox 10 coats, for a pair of shoes 1-2 a coat, and for a pound of sugar 1-100 of a coat; and E, who barters sugar, would pay for a bushel of wheat 10 pounds, for an ox 1000, for a pair of shoes 50, and for

a coat 100.

It is thus evident that in a state of barter each man would have an accurate numerical expression for the values of all the commodities on the market, but one peculiar to himself, and consequently unintelligible to others, or at any rate capable of being made intelligible to others only by a mathematical calculation. In describing values A could only give the amount of wheat each commodity is worth; B, the amount of beef or live cattle; C, the number of pairs of shoes; D, the number of coats; and E, the amount of sugar. If a dealer should attempt to establish in this community a store for the purchase and sale of all the goods produced, he would be obliged to quote the price of each article in terms of all the others in order to meet the needs of his customers. Were commerce at all active and large in amount, this would mean an interminable price-list and an amount of calculation which would require more time

than all the other business of the establishment, to say nothing of the liability to error and the consequent danger of loss. It is safe to say that under such conditions commerce would never have assumed very great proportions or played a very important rôle in the world's history. The difficulty which these traders have met is that of a variety of methods of expressing values, and the remedy is the acquisition of a method common to all. The difficulty is similar to that which people speaking different languages would meet in trading, if no one understood the speech of the other. Each trader's language of value is peculiar to himself and not understood by his fellows. What is needed is a common language intelligible to all.

The acquisition of such a language is accomplished through the use of a single commodity as the standard for comparing and reckoning values. In our hypothetical community, for example, any one of the five commodities could be used for this purpose. On the assumption that sugar is consumed by every one and consequently frequently bartered for every other commodity, each person would know the value of his product in terms of this one, and would be able to express that value in a form intelligible to others. If A should always describe the value of his wheat by stating the number of pounds of sugar a bushel would buy, and B, C, and D in the same manner should express the value of cattle, shoes, and coats, each would readily understand the other, and comparisons and calculations of values would be easy and simple. The figures in which such comparisons and calculations were expressed would always refer to multiples or subdivisions of a pound of sugar, and would constitute a language of value understood by every member of the community. If, in discussions of value, for convenience or any other reason, a special name were given to a pound of sugar, for example, the name dollar, franc, mark,

or pound sterling, the language of value would become that employed in the United States, France, Germany, or England at the present day.

The capacity to serve as a standard of value is possessed by all commodities which are widely used and consequently frequently bought or sold. In primitive societies custom has usually caused the selection of that commodity as the standard which is most widely known and most highly esteemed among the people who have occasion to trade with each other, and in more highly civilized communities considerations of convenience and economy have usually dictated the selection of one among several articles which might conceivably be employed for this purpose. Whatever the commodity may be, however, and by whatever process selected, its function as a standard is simply that of furnishing the community with a means of measuring, expressing, comparing, and recording the values of the various articles of commerce.

2. The medium of exchange.-The phrase medium of exchange describes a group of instrumentalities which serve as a go-between in commercial transactions. In the United States, it includes, gold, silver, nickel, and copper coins, several varieties of government notes, bank-notes, checks and drafts, bills of exchange, and several other kinds of documents less commonly used. Each of these is appropriately called a medium of exchange because it is used as a go-between in the exchange of commodities. For example, suppose a farmer brings butter and eggs to market, and wishes to exchange them for groceries. In all probability he will not make the exchange directly, but through the medium or by the mediation of coins; that is, he will trade his butter and eggs for coins and then trade the coins for groceries. A laborer wishes to exchange several days' work for a coat, but he will rarely find a tailor who

needs his services, and who will, therefore, be able and willing to trade a coat directly for a certain number of days' work. Instead he will trade his services with some one who needs them for coins or government notes or banknotes or both, and then trade the coins or notes for the coat. It is possible, and it often happens, that a considerable period of time intervenes between the first trade and the last. The farmer may sell his produce a whole year or even longer before he trades the coins or notes received for other commodities. Indeed, he may never himself complete the trade, but transfer the right so to do to some one else. In any case the coins, notes, or other documents received will be used in buying other things and will thus fulfil their mission as a medium of exchange. In the same way people use checks, drafts, bills of exchange, and various other documents.

Like the standard of value, the medium of exchange owes its existence to certain wants which were felt very early in the history of commerce, and upon the satisfaction of which further progress depended. These wants are three in number, namely: that for some means of exchanging commodities of unequal value, that for some means of accumulating wealth in such a form as to make it available at any time for the purchase of any and all commodities, and that for facilities for borrowing and lending.

The first of these may be illustrated as follows: A farmer has an ox for sale and desires a pair of shoes. He may succeed in finding a man who has shoes for sale and wants beef, but the ox is worth twenty pairs of shoes and he wants but one, and very likely the shoemaker wants only a few pounds of beef instead of a whole ox. Manifestly the trade cannot take place unless the farmer is willing to take nineteen pairs of shoes which he does not want and the shoemaker twenty times as much beef as

he wants, or unless the farmer is willing to kill his ox, to hand over to the shoemaker an amount of beef equal in value to the shoes and to keep the remainder. Of course there might be other people in the community quite willing to take the beef which neither the farmer nor the shoemaker wants, but that would not help the matter unless these traders should happen to want the various commodities which their neighbors might be willing to give in exchange for it. On the assumption that the farmer wants only a pair of shoes and the shoemaker only a few pounds of beef, the willingness of other people to buy the surplus might not improve the situation.

The need of some means of accumulating wealth is obvious. Frugal people wish to make preparations for the future, and if the aggregate of their products exceeds that of their consumption, they are able so to do, provided some means of saving exists. The most obvious one which suggests itself is that of hoarding surplus products, but this is a very precarious method in case the products in question are perishable, or are subject to frequent fluctuations in value or are so bulky that the process of hoarding them is very expensive. Most of the ordinary products of industry are subject to one or more of these contingencies. Hence, in the absence of some special provision for the accumulation of wealth, the risks involved are so great as to prevent saving on any large scale.

The need of facilities for borrowing and lending is equally obvious. A farmer may have no accumulations to tide him over the period during which his crops are growing, or he may wish to keep his produce for a rise in price, or he may wish to extend his agricultural operations by more fully stocking his farm, by the use of superior implements, or by the cultivation of more acres. In any one of these cases he needs to borrow, and inability so to do might