CIVILIZATION began with exchange, and exchange began with barter. Barter means the exchange of things for things, with each transaction complete in itself, leaving no claim or obligation by either trader. Obviously, such transactions require contact of two traders, each of whom has something the other wants. Such contacts are not easy to make, and an escape from this limited exchange method had to be found to permit man to raise his standard of living beyond that of bare necessities.

The first device resorted to was to adopt, for a criterion of value, some commodity that was in common use. A list of the commodities adopted in this way at various times and places would include salt, hides, grains, cattle, tobacco, metals, and so forth. The trader accepting these found them useful not only to himself, but on account of their general acceptance, he was assured that he could use them to secure desired commodities in exchange. This was the first step in the process of liberating exchange, a process that would culminate with money. A refinement in this important first step came about with the adoption of precious metals such as gold and silver as intermediating commodities. This manifested a greater emphasis upon usefulness for exchange rather than for consumption, and marked the final phase of whole barter, or value-for-value exchange, before the dawn of money.

Because of the use of precious metals as the last and highest phase of whole barter exchange, the next step in the direction and harbinger of money was the introduction of a promise to deliver these metals. The belief persists to this day that money, to be sound, must promise the delivery of gold or silver. The essential quality of money, however, is its promise to deliver value in any commodity at the choice of the holder. But in spite of the specification of a given commodity stipulated in the promise, the promise came closer to being money than anything previous because it involved a time interval between the first transaction and the final completion of the exchange, when value has been received on both sides. It introduced also the element of faith.

The need for money has always been far in advance of the implements available for utilizing it. Because the need was and always is so urgent, the trader has accepted anything that has offered the prospect of effecting non-direct barter exchange. In doing so, he has exposed himself to the devices of the charlatan as well as the sincere reformer. He has had no rationale to guide him. The only logic he has been able to employ has been to choose the better media when two or more have been available.

Why has man consistently endeavored to escape simple barter when, because of its very simplicity, it has offered security against deception while monetary systems have invariably betrayed him? Why must man have money? It is neither tool of production nor a product. It is neither food, raiment, housing nor adornment. It has no value, yet it is indispensable to modern man.

Why indispensable? Because man's wealth producing potentialities through specialization of labor cannot be exploited unless the exchange of goods and services can be split in two parts, with one trader receiving value and the other receiving only the prospect of value. Therefore what man has been striving for is the opportunity to acquire without coincidentally surrendering value. If he must complete the exchange in one transaction, he is reduced to simple barter, and simple barter requires him to find someone who has what he wants and wants what he has. To do this requires so much time and effort that he loses what he might otherwise gain from the specialization of labor.

Visualize two persons facing each other, one holding a value that the other desires, and the other holding nothing of value. How can they do business? Obviously the empty-handed, would-be trader must have some means of inducing the possessing trader to transfer the desired value. If he asks what the possessor would like in exchange and promises to deliver this desired commodity at a later time, and if this promise is accepted and the possessor surrenders his value, the promisor has established credit. But the transaction is not a monetary transaction, even though the promisee accepts a written evidence of the promise. Here, then, we should pause to comprehend that money and credit are not synonymous. The promisor has not gained the freedom of money, because he must now seek and find and deliver the specific commodity pledged. The barter transaction has been only partly split, by the introduction of the time interval. To invoke the facility of monetary exchange, the would-be trader must deliver requisitionary power upon some unidentified trader or traders who can and will surrender an equivalent value at the holder's option.

The utilization of money as the medium of exchange does not mean departure from barter. It is but a method of splitting barter completely in two halves. The acceptor of money gives value therefore but receives only a promise of value, which, when conveyed to a subsequent seller, requisitions his half of the split-barter transaction. Introducing a time element into barter and giving the acceptor the power to requisition his half from any trader and in any commodity, at any time, is what expedites and multiplies exchange, thus releasing more and greater variety of production and hence raising living standards.

While money is the liberator of exchange, it is also the vehicle of human trust and confidence. Its substance is the pledge that he who takes will also give. This pledge of faith is the basis of the power to issue money. In simple terms, it means that he who would issue money to cover his purchases must be prepared to redeem his pledge by selling. In other words, persons who enter a monetary exchange agree to give and take things in trade, at the market price, on the tender of the monetary instrument from any quarter. Thus every trader relies upon the pledge of the issuer that he will honor his issue on demand.

A society accustomed to trade on the basis of its faith in its money is vulnerable to deception as it never was on the whole barter system. It is imperative, therefore, that man master money, so that he can assure the fidelity of the promise implicit in what he accepts as money, and can not only exclude from the issue power all unworthy of it, but can admit to it all of those who are worthy of it—including those now excluded under the existing political monetary system.

If money is to fulfill its function as the liberator of exchange, it must be protected from pollution by false issuers, and it must also be free to draw its supply from all worthy sources. The broader its base, the higher can be its apex and the greater its service to mankind.


For economic and social advancement, men must specialize their labor and facilitate their exchanges. To reap the fruits of this operation, they must organize in cooperative groups even though widely dispersed.

Money fulfills this function through its circulation. The whole cooperative scheme is made up of monetary circles, tying together men who mostly are strangers to one another but who have a common interest in the cooperative circle. Money organizes these circles of cooperators on a democratic basis, for each in turn is able to choose his supplier. While each has contact with and knowledge of only the ones immediately to the right and left of him, i.e. the ones to whom he sold and from whom he bought, the circle formed by the money that passed through his hands may involve scores or hundreds of others, all of whom are essential to the successful operation of his exchange.

Let us take a hypothetical example. An Ohio clothing merchant borrows a sum of money from a bank which he sends to a New York clothing manufacturer, who sends it to an Australian wool grower, who sends it to a supplier in England, who sends it to his supplier in Argentina, who sends it to a French supplier, who sends it to a Swedish supplier, who sends it to a supplier in the East Indies, who sends it to a Cuban supplier, and so forth until it gets back to the merchant in Ohio who started the circle. Such a circle is very unlikely, because it is confined to wholesale traders without the money getting into the hands of employees through payrolls at some point. This was avoided in the example because the ramifications would have been too complex to follow.

The point intended to be conveyed by the example is that the Ohio merchant started and finished a monetary circle that went around the world and effected exchanges among traders who were strangers to each other, except that each knew his supplier and his customer. Of such circles the economic and social fabric is woven. Visualize the intricate interlacing of economic interest and activity if some or all of the factors in the circle borrowed money from their banks and started new monetary circles of their own, and contemplate how essential to the economy it is that this power to issue be widely held.

We are apt to think that money circulates indefinitely, but this is a mistake. Money has a life span that lasts from issue to redemption. This does not imply that individual issues are identified. It means that an equivalent amount is normally retired by the issuer through payment of his bank "loan," and thus the money is retired. Nor is there a definite life span. Some monetary circles are longer than others. The length is determined by when in the circle a buyer is found for the goods or services offered by the issuer. Also, an issuer can balance his account by retiring money from circles other than the one that he initiated He discharges his obligation to the economy by retiring from any quarter whatsoever an equal amount of money as compared to his own issue.

Money is the organizer of true cooperators, i.e. those who meet competition, and the eliminator of those who do not. Thus it raises standards of living and culture ever to higher levels. It is the greatest civilizing agent available to man, and his greatest liberator. An eloquent statement of the social order, as developed through the use of money in exchange, is given by Spencer Heath:

The social organization raises the individual member from the state of being as a creature, dependent on and arbitrarily enslaved to environment, into freedom and abundance, dependent on but not enslaved by the society of which he is a functioning part. Without the services of his fellow social units, his whole life is ruled by the exigencies of environment and circumstance. His life is determined without regard to his choice or will, and he must obey, under penalty of his death and the extinction of his race. But when he enters into the social relationship of serving many persons and being by many served, the productivity, the creativeness of this golden rule of exchange lifts him out of an almost completely necessitous state and into a relative abundance that relieves him from the compulsions of an un-socialized environment and endows him with wide alternatives and options for the exercise of his spontaneous will. And when he has entered, his acts of service and exchange are by voluntary contracts under consent of his own will in accord with that of his fellow man—the 'social will'—as its unforced expressions arise in the forums of exchange. Out of the fruitfulness of the services performed and exchanged, this as yet too limited mutual freedom and accord of individual wills, the energies of men are emancipated to activities not prescribed by necessities from without but by preference and choice—by realizations of the intrinsic and spontaneous will. For this gift of freedom to its members, the society is requited with all spontaneous researches, discoveries, and recreations and the practice and enjoyment of the esthetic and creative arts.*


The word money has two meanings: the concept and the instrument that manifests the concept. The monetary concept is a bookkeeping concept and system of split-barter trading in which money springs from a debit and is returned by an offsetting credit. The debits represent money issued and the credits money accepted. The monetary instrument may specify the transferee, as with a check, or it may take the form of currency (bills and coins), which specifies no transferee and is valid in the hands of any holder.

The moving instruments evidencing the bookkeeping process need have no intrinsic value. They are floating ledger items that, on reaching the authorizing bank which acts as central bookkeeper and clearing house for the system, cause the transfer of their sum from the account of the transferer to the transferee. The system is thus a reflection of and dependent upon the private book records of traders. When a trader sends through the monetary system a money manifest, he figuratively tears a page from his ledger to permit the entry to pass through the system.

The bank has no power to issue money in any form. It merely authorizes traders to do so by incurring debits on the books of the system. The only way that such an issue of money can be effected is for the issuer to write an order on the authorizing bank. Thus the check becomes the initial form of money. If it is desired that the credit be transferred to a specific person, the check so states. If it is intended to convey the credit to unidentified persons, it orders the bank to supply currency. Thus we see that checks are the initiating form of money, and that currency is but a transformation. It should be noted also that the currency is as much the issue of the check writer who requisitioned it as was his check. In effect, he merely ordered the bank to certify his credit by issuing instruments in the name of the bank, who in exchange for assuming the liability acquired a credit from the check writer's account. To think of currency as money and checks as "substitute money" is profoundly mistaken.

The authorizing bank has power neither to issue nor to loan money, though it seems at a cursory glance to exert both these powers. It loans neither its capital, its surplus or its depositors' funds. It merely authorizes the borrower, so-called, to increase the money supply, and its deposits show an immediate increase in the sum of the so-called loan. The currency that the bank gives out may bear a bank's name or that of the Government, but it is nevertheless the issue of the writer of the check that requisitioned it.

Money, as we have seen, has no value, and this is not any less true of currency. Money merely permits value in the abstract, dissociated from any specific commodity, to be exchanged for an equivalent value in any commodity at any time or place, at the behest of the holder. While metallic coins are useful as currency for small transactions or making change, the fact that they may have intrinsic value does not, therefore, make them superior to paper as money. Indeed, the reverse is true. For to the extent of their intrinsic value, they are not money at all, but instruments of whole barter. They are only monetary (split-barter) instruments for the balance of their face sum. A commodity can never act as money, for the very purpose of money is to obviate the necessity of transfer of value from the buyer to the seller and, thusly, to escape the limitation of whole barter and gain the freedom and facility of split barter.

As money is the mathematics of value, so a sum of money is expressed in terms of an abstract unit of value. Such a value unit might be arrived at initially by equating it with the value of any commodity or group of commodities a given point in time. Whatever value might be selected in this way then becomes the unit, or the figure 1. To establish it as the monetary unit, however, there must be actual exchanges, where under buyers issue and sellers accept the issue on the basis selected. Such actual exchanges establish the power of the unit, and the acceptors, i.e. the sellers, then have a fixed power established in their minds and undertake to get in exchange for the units as much or greater value than they gave. Thus a monetary unit is established by the precedent of actual exchanges and in no other way. No law or authority can give a fixed power to a monetary unit. It must be fixed in actual competitive trade.

At the inception of a new monetary unit, it would be theoretically correct to launch it at par with some item or items of commodity value. Since we already have operating monetary units in existence, however, it would only be necessary in practice to base a new unit upon some such existing unit or fraction or multiple. For if we made up a market basket of some or all commodities that are now passing in exchange and tabulated, say, their dollar prices, we would find that one dollar represented some fraction of the whole. In other words, all existing monetary units are already based upon a market basket, and a new monetary unit would be based upon a market basket by accepting an existing unit as the criterion for the new. That is how the American dollar was established, by introducing it at par with the Spanish dollar then current in the States. Thereafter, it followed its own course. The Spanish dollar has long since passed out, but it provided the springboard for what has proven to be the most stable unit in the world.

Bearing in mind that value can only be determined by competition, we might now define money as follows:

Money is an obligation expressed in terms of a value unit and issued by a buyer in exchange for value from a seller. It is transferable and acceptable to other sellers for equivalent value, and is ultimately redeemed for equivalent value by the issuer.


* Citadel, Market and Altar, The Heather Foundation, 1957, page 196 (from the book draft prior to publication).