The Nature and Purpose of Money

Money is useful and it is used.  Money serves the economic process, which in turn serves human society; money is a servant serving a process, not a ruler served by the process.  Money’s properties must be suitable for its proper functioning.

If barter is replaced by the divided exchange, selling here and buying there, the economic process can attain a vastly greater magnitude and intricacy.  [CWL 21, 37-39]

Money is an instrument invented by man to make possible a large and intricate exchange process.  [CWL 21, 104]

But the divided exchange postulates a dummy that will bridge the intervals, short or long, between contribution to the process and sharing in its products.  Further, if this dummy is to work satisfactorily, if it is to bridge the intervals fairly and adequately, then it must fulfill certain conditions.   Divisibilityhomogeneityconstant in exchange valueuniversally acceptable… [CWL 21, 37-39]

… the dummy must be constant in exchange value, so that equal quantities continue to exchange, in the general case, for equal quantities of goods and services.  The alternative to constant value in the dummy is the alternative of inflation and deflation.  Of these famous twins, inflation swindles those with cash to enrich those with property or debts, while deflation swindles those with property or debts to enrich those with cash; in addition to the swindle each of these twins has his own way of torturing the dynamic flows; deflation gives producers a steady stream of losses; inflation yields a steady stream of gains to give production a drug-like stimulus. [CWL 21, 37-38]

Money makes possible a vast and intricate exchange economy.  Money may be in the form of coins from a federal mint, bills from a printing press, tokens from a machine, a balance in an account.  It may be created by credit from an organized credit-granting system.[1]  Apart from its exchange value in transactions, money itself is of value to the process to the extent it lubricates the process and helps the participants  to provide continuity and stability to the process.

the real issue is the value of the dummy (enabling divided exchange rather than barter)..the relative value is its usefulness… the scarcity of the dummy is attended to by the technicians of the technical rules governing its issuance.  Whether it issues from the printing press or from the credit structure makes no difference.  The economic value lies in the human effort against scarcity… the exchange value is the ratio or proportion in which are exchanged the different categories of objects for which men strive because they are useful and scarce…. [CWL 21, 37-39]

Money serves the economic process, which in turn serves human society; money is a servant serving a process, not a ruler served by the process.

money is an instrument invented to fulfill a definite task; it is not the ultimate master of the situation. One has to place first human society which is served by the economic process, and second the economic process which is to be served by money.  Accordingly money has to conform to the objective exigencies of the economic process, and not vice versa. [CWL 21, 101]

The velocity of money is related to the velocity of production and sale of units of products and services, not to the rapidity with which money changes hands.  If A sells to B shares of previously-issued stock or an old house, nothing is produced.  Money has changed hands but has not done any productive work.

the work for money to do is to move, say, wheat from the western plains to the householder’s table, and increasing the number of owners that intervene in the process gives no more than a phenomenal increase in the velocity of money. … the velocity of money in the main circuits is tied to the velocity with which goods are produced and sold. …the velocity of money in the main circuits coincides with the velocity, the time interval, between the initiation of production and the moment of final sale. [CWL 21, 61-62]

[1]Also, it may be simply printed by a government and dispersed irresponsibly, as in Zimbabwe, causing rampant inflation.