Yesterday we formulated a very important question which came to the fore with the transition from national economy to world-economy. With this transition the question of price begins to acquire a very different significance in the economic life from what it had before. But there are other things to consider before we can gain a conception of the factors which really determine price. For the price — the public price so to speak — which eventually emerges on the market, or in the circulation of goods, is really of far less economic importance than that which lies behind the forming of prices and of which price-formation and price-fluctuation are merely the final results.

Now these factors which precede the forming of price, both on the buying and on the selling side, are connected with the social relationships in the midst of which the buyer and seller stand. It is these relationships which determine whether the buyer will attach a greater or less value to a certain sum of money. I mean value not only in the subjective sense. Economically speaking, the subjective is only important to the extent that it is properly grounded in the objective — i.e., to the extent that it rests on a true judgment of objective processes. But the value of money is very important even in an objective sense. The economic question nowadays cannot be isolated from the social question. Only by observing the interplay of the two can one reach a valid judgment. Thus we must recognise that the social discontent underlying the present social disturbances is connected above all with that which precedes the forming of prices and of which the forming of prices is merely the final result. As I have shown already, even in the payment of wages — i.e., in that price-formation which, under the existing economic system, ultimately finds expression in the rate of wages — we really have an instance of purchase and sale. Thus everything that leads to wage disputes really depends on social relationships in which both the worker and the enterpriser are involved, relationships of which the upshot is that kind of price-formation which constitutes the payment of wages. Accordingly, the first thing to investigate is: How does money itself influence the forming of price? For money itself plays the chief part nowadays both in ordinary purchase and sale, and in the payment of wages, and in all the rest of economic life as well. We must distinguish between that which eventually emerges as price in terms of money, and that which constitutes the essential value of the money in the hand of one man or another — in the hand of the seller or of the buyer. Today, therefore, we must pause for a moment to consider money as such.

In the current treatises on Economics you will find various elegant statements on the nature of money. For instance, you will find a list of the qualities which money must have in order to permit of its use as money. Let us consider critically some of the qualities which are thus enumerated, for this will show you how necessary it is to get away from many of these current ideas of Economics into a rather different way of thinking. For instance, it is said: In the first place money must have a universally recognised value. But the question is: Who is to be the recogniser? When you have said that money must have universally recognised value you have said nothing. You have simply asserted that it ought to have a certain property, but you have not told how it is to get it. The second property enumerated is still more remarkable. It is said, for instance, that money must be small in volume and yet, being rare, in spite of its small volume it must be possible for it to have a high value. For this property makes money especially easy to store up and, if only for this reason, will constitute a fairly strong inducement to the amassing of wealth. If sovereigns were as big as tables it would be far more difficult to hoard them. Lycurgus saw this long ago and introduced a rather more bulky currency as a preventive against excessive enrichment. If sovereigns were as big as tables it would indeed be less comfortable to get rich than it is now. People would notice it more, and so on. The reason therefore appears to be a rather superficial one. The next thing they say is this: Money must be divisible at will. (I have found this statement, too, in one of the text-books on Political Economy). But this again can only be brought about by some act of recognition. Something must first be done to make it so. It is therefore once more a rather empty statement. Then they say: Money must be easy to preserve. Well, this property of being “easy to preserve” will be brought home to us in its full significance in the course of today's lecture.

You see, we must not only be clear on this, that Nature as such only receives an economic value when it enters into the general economic circulation — when it is taken up by Labour — and again, that Labour only receives an economic value through the way it is organised or divided, and finally, that Capital only receives a value through the fact that it is taken over by the Spirit of Man and so worked into the economic process. We must also be clear that money as such receives its value by the free process of circulation. And now we must consider the changes which money undergoes in the course of circulation. The premises are given to us by what we have said already in these lectures.

Speaking of money, the first thing we have to deal with is ordinary purchase-money — the money we use to buy anything which serves us for consumption. But we must also consider what we may call loaned money. This we have seen in a former lecture. The question now is: Bearing in mind its connection with the whole economic process, is loaned money quite the same as purchase-money? If you are considering purchase-money you will have to ask: How does purchase-money come into existence among all the other elements of buying and selling? It comes about by this means: He who makes use of money, in giving his money, has not only given something which effects an immediate exchange, but he has also given something which mediates an exchange. He gives something which inserts itself into the exchange. As I have shown already in these lectures, everything that enters as a mediator into the process of exchange is money. Suppose I am not content with acquiring as many peas as I can eat myself. Suppose I acquire peas with the object of using them — trading with them — in order to obtain some other things which I require. In that case, simply through this mediating function I am already transforming what would otherwise be an article of consumption into money. Spengler makes a very shrewd observation on this point. Spengler exploits his ideas along a general line of thought which is unfruitful, but he often makes very sound observations. He says: At a certain period of Roman History human beings, economically speaking, became money. The slaves became money. So long as I used the slaves for myself — that is to say, if as an Ancient Roman I only acquired as many slaves as I could use in my own household — the slave was, of course, a means of production. But it is different the moment the slave is hired out or lent. At a certain period of the Roman Empire this was the case. People had so great an army of slaves that they were able to lend them out. They could apply them to all manner of profitable purposes by trading with them. When this took place the slaves became money, so that for that time, we may say, human beings became money. This is a perfectly correct observation of Spengler's, from which you can see once more how that which acts as purchase-money gradually emerges out of what is at first only an article of exchange. It follows from this: Whatever we use as money — to be a really useful form of money — must not merely oscillate, like peas, between the function of being consumed and the function of being passed from hand to hand. For this would involve constant fluctuations of value in the process of circulation. We want something which is used for no other purpose than for mediating an exchange; and to this end there must be a certain — albeit only a tacit — agreement among those who use the money. This, then, is an essential point: The money must only be used for an exchange, for a medium; it must not be used for consumption.

But loaned money is something essentially different from this purchase-money. For in the case of purchase-money you have no other foundation on which to estimate its value — nay, you have no other need to estimate its value than this: How much will you get for it? And as to that, time makes no essential difference. For whether you buy a pound of meat today or after a certain lapse of time, you must estimate the pound of meat according to its consumption-value. Your money may in the meantime have acquired a different value in relation to the pound of meat. But for the human being who eats it the value of the pound of meat cannot, properly speaking, change in course of time. This, however, is essential: The given pound of meat can only be eaten during a certain period of time. That is to say, it can only have a value for a certain period of time. For it goes bad. And this is a very pertinent economic fact. Everything that is a genuine object of use or consumption is subject to decay.

Now, when for the purposes of pure exchange we use money as an equivalent, we must admit that, as against articles which decay, money is an unfair competitor. For, in normal circumstances, nowadays, money does not seem to decay. I say advisedly, it does not seem to decay. Here you can see what an unhealthy element is introduced into the economic life when we bring into it different relationships from those which obtain in reality. By our established institutions money has a fixed numerical value under all conditions. No matter how it may otherwise be placed in relation to the social life, money has its face value and is supposed to keep it permanently. But in reality it does not do so. Everything else is honest. Meat after a period, which varies with its quality, begins to smell. Money does not do this, no matter what its quality may be. Money does not openly “smell.” And yet, when we see circumstances bring it about that an article grows cheaper or dearer after a certain time, we are obliged to admit the following. While the article itself, by virtue of its qualities for human life, must retain the same value (for general conditions will ensure its being consumed at the right moment and a new one substituted for it), the same thing is not true of money. Consequently money, as such, as a pure medium of exchange, is an unfair competitor because it does not reveal in any way the fact that it also is really subject to changes. If I have to pay a certain sum of money for a pound of meat today and a different sum of money for a pound of the same meat a fortnight hence, the difference (the increase for example) in the money I must pay cannot be due to the pound of meat. It must therefore be due to the money. It is in fact due to the money. And if the money still bears the same face value, then the money is beginning to tell a lie, for its real value has decreased. If I must give more in exchange for a pound of meat, the value of the money has decreased. That is quite obvious. In this way, by the act of circulating the money, I bring into the process something which is not really there economically. Economically the facts are otherwise. Economically the situation is that money itself, simply through the economic process, undergoes changes.

We must now investigate the occasions upon which money undergoes changes. In addition to exchange-money or purchase-money we have loaned money. Take for instance the loaned money which a man obtains in order to set on foot some enterprise. For him it is not purchase-money; for him it becomes working capital.* Now you must see that this working capital, this loaned money, has an essentially different value — an essentially different property. Loaned money is fundamentally different from purchase-money. Except for the fact that it still consists of gold, silver and paper, not many of its original properties are left when purchase-money is transferred to the sphere of loaned money. It acquires its value in quite a different way. The moment loaned money comes into circulation the Spirit of Man seizes it. Human thinking sets to work and it is through this entry of human thinking into the process that loaned money receives its actual value. When a bank-note is lent to a man who is about to undertake some business — at the moment he begins to use it, it would be far more important to write on the note whether the man is a genius or a fool in business. For the value of the loaned money in the whole economic process will henceforth depend upon the way he acts with it.

Lastly we must pass from loaned money to the third kind of money which I mentioned a few days ago. Nowadays as a general rule it is not taken into account and yet it plays the greatest imaginable part in the economic process. In fact, we must now pass on from loaned money to gift-money. Gift-money, fundamentally speaking, is all that is spent on education. This plays an enormous part in the economic life. Gift-money, again, is all that is spent on endowments and the like — all that has the effect of preventing the evil damming up of Capital on the land by Capital investment, which is so ruinous for the economic life. At this point we must say: For the man whose livelihood depends on purchase-money, gift-money simply becomes valueless. It loses its value. Gift-money is the opposite of purchase-money, as we can see from the simple fact that only he who has received the gift can purchase with it; one who has not received the gift cannot purchase with this particular money!

We have therefore three kinds of money, qualitatively different from one another; purchase-money, loaned money and gift-money. Now to comprehend the relation between these three, we must consider economic systems such, for instance, as the private economies which we assumed hypothetically in the last lecture — economies representing a kind of closed domain. There we shall find that after a certain time all that is loaned money passes over into gift-money. Nor can it be any different in the case of that closed economic domain which is “World-Economy.” Loaned money must gradually pass over entirely into gift-money. Loaned money must not be allowed to be dammed back into purchase-money, so as to disturb the latter.

Loaned money, therefore, passes over into gift-money. So it must be in a self-contained economic system. And what does it do in the domain where gift-money is working? It loses its value. Thus we may say, if we take the domain of purchase-money, the money will here represent a certain value. In the domain of “gift” on the other hand, the money has, in respect of all that obtains in the domain of purchase, a negative value. It lets the purchase-value vanish into nothing. Finally, between the two, the transition is brought about through loaned money. The loaned money itself gradually vanishes into gift-money.

Perhaps, ladies and gentlemen, you will say that this is hard to follow. It is. I am only sorry that we cannot go on for months detailing instances where we can see that the facts are as I have stated, with regard to the valuation and devaluation of money. This, however, should really be our task. All that can be said in the present lectures should be taken as a basis for further researches in Economics. In the brief period of a fortnight, only hints and suggestions can be given; but you will find that all the economic statements which have here been made will be transformed by detailed investigation into valuable economic truths — valuable both in science and in practice.

It does actually take place, ladies and gentlemen: In the economic process money undergoes metamorphoses; it acquires different qualities as it becomes loaned money or gift-money. But we mask this fact if we simply let money be money, and use the number inscribed on it as the unit of measurement and so forth. We mask it and the reality takes its revenge — a revenge which reveals itself in fluctuations of price, with which (though they are actual enough in the economic process) our reasoning faculty cannot keep pace. We ought to be able to follow them. If I may say so, we ought not to let money merely flow into circulation and give it freedom to do what it likes. For we thereby do something very peculiar in the economic life. If we require animals for some kind of labour, the first thing we do is to tame them. Think how long a riding-horse has to be tamed before it can be used. Think what would happen if we did not tame our animals, but used them wild, taking no pains to tame them. But we let money circulate quite wildly in the economic process. If and when it chooses to do so — so to speak — we let it acquire the value it has as loaned money or as gift-money. And we do not foresee, when somebody who is an industrialist possesses a money, from whatever source, which has been wrongly transformed from loaned money into gift-money and pays his workmen with it, that the result is quite different from what it would have been if he had paid them, say, out of pure purchase-money.

You see, as things are today, the function of money has constantly had to be corrected. Take the case, for example, of a national economy bordering on other national economies. By letting money function in this wild unguided way, without bringing any intelligence into the process, a national economy may easily find itself in a disastrous position with regard to the price of some piece of goods, or something else that is required. So long as the national economy is one among others (and no repressive measures are adopted) the people will simply import the article in question. Their imports will be increased. Things are constantly being corrected in this way. For world-economy, on the other hand, no such correction is possible. We cannot import things from the Moon, If we could import from, or export to, the Moon and Venus and the rest, world-economy would also be like a mere national economy. This is precisely the great question: What becomes of our science of national economy — that is, Political Economy — through the fact that the world is now a single closed economic domain?

And now let us suppose that we really make up our minds to allow money to grow old. Suppose you have a certain piece of money, no matter of what substance it is made, or what is the date inscribed on it. Say it is “1910.” And now you take another piece of money with the date “1915.” The money marked “1915” begins to exist, as money, economically, in that year. And now suppose that by some reasoned treatment it undergoes the process which is undergone by all other exchangeable products, namely, that it loses its value after a certain time. The precise figures I mention are not important; they are merely illustrations. The actual figures required would have to be the subject of infinitely numerous — but perfectly possible — calculations, as we shall presently perceive. Suppose, therefore, for the sake of example, that the piece of money would have lost its value for economic intercourse by the year 1940. It would only have a definite value between 1915 and 1940. For that period it would have, as we shall see directly, a determinable value. If money loses its value in the economic process after twenty-five years, a piece of money bearing the date “1910” will have lost its value in the year 1935. Thus I should assign a peculiar property to the money which I carry about on me; I should assign to it a kind of age. This 1910 money is older; it will die earlier than the other — earlier than the 1915 money. Now you may say: “That is just a scheme.” No, it is nothing of the sort. What I have just explained to you is the actual reality. That is how the economic process actually wills it. The economic process of its own accord makes the money grow old. The fact that it does not appear to grow old — the fact that we still buy things with 1910 money in the year 1940 is only a mask. In doing so we do not really buy with this money; we buy with a fictitious money-value.

If therefore the money in my purse grows old in this way, if its date of origin has a real meaning (and by “growing old” I mean getting nearer and nearer to its death), if this be so, then money, like man and every other living thing, has a certain value impressed upon it by the fact that it is growing older. The money comes to life and a value is impressed upon it. Suppose you have young money, money of the present year — 1922 money — this 1922 money will be good purchase-money, needless to say. But now suppose that you are an enterpriser and you ask yourself: “How shall I supply myself with money for my undertaking? Suppose, according to my calculations, my undertaking must be planned for a period of twenty years. Shall I provide myself with old money or with young money?” Then you will say to yourself: “If I take old money, it will have lost its value in five years or in two. Therefore it will not do for me to use old money. If, according to my calculations, I must provide for a long period, I must have young money.” Thus, under the influence of long-period undertakings young money receives its peculiar economic value — a value far greater than that of old money. This economic value really exists — and it is there now. On the other hand, suppose I have to embark on an undertaking which involves calculations covering a period of only three years; in that case I should be a bad economist if I used very young money. For the young money, by virtue of its youth, is the most valuable and accordingly the most expensive. Thus, if I require the money for a shorter period, I shall provide myself with cheaper money. Thus you see, for anyone who has to apply his spirit — his intelligence — to money, the age of the money can begin to play a part, of which he is quite conscious.

Please note, ladies and gentlemen, that this is not a thing which does not exist already. It exists, but in a wild untamed way, which results in mutual disturbance and unhealthy economic conditions. On the other hand, if you tame money, if you really assign to it a certain age, letting young money — as loaned money — be more valuable than old, then you will be impressing the money with its real effective value, the value it possesses through its position in the economic process. This value really only inheres in the money qua loaned money, for even if money is loaned money, yet as purchase-money it still retains its former value. Nor need you consider too carefully whether you ought to provide yourself with other money in addition for what you, as enterpriser, are going to consume. These things will correct themselves of their own accord.

And now remember that free gifts also play a part in the process, wherein they have a very real significance — those gifts of which I have already spoken in various connections. All that we put into the educational system is a gift — notably when it is a question of a really free spiritual life. This, too, is happening already, only people fail to notice it. When you give directly, your intelligence is in the process. As things are now you do give, but the gift is absorbed into the general pool of taxation. It vanishes into a vague economic fog and you do not observe what happens. So the thing runs wild. In the other case, conscious intelligence would come into it. Consider, for a moment, what kind of money you will use where it is a question of free gifts. If you are thinking in a true economic sense, then, where it is a question of free gifts, you will use old money — money that loses its value as soon as possible after the gift is made; provided that the person who takes the benefit of the gift has just enough time to make his purchases with it.

At this point, needless to say, there must be some rejuvenating process. The money, in fact, must have a successor. The important thing is, as you will readily perceive, that things must not be allowed to happen arbitrarily through the general chaos which the Economic State spreads everywhere. The Economic State brings about a hopeless confusion of values by failing to distinguish loaned money, purchase-money and gift-money, though in reality these three are separated all the time. You will readily perceive that if you do not wish to leave the thing to chance — if you wish to bring reason into it — you simply must interpose the necessary associative bodies at the transition points between purchase-money, loaned money, gift-money and the renewal of money. Take the case of one who has money to lend. You will not let him lend it in a senseless way. You will bring him into connection with his Association. The Association will act as a mediator. The Association will provide him with the most sensible way in which to lend, or again, with the most sensible way in which to give. When a gift takes place (and every individual is free to give or not to give) the money, if it has a year-value, as explained above, will not undergo the same process. But the important thing is to bring about sensibly and in accordance with reason the things which happen in any case in the economic process, but behind a mask. The money, when it has served its purpose, must be collected. And then once more, at the beginning of the process of purchase and sale, it must receive its original value. That is to say, it receives its new year-number and passes into the hands of those who are dealing once more with Nature-products, Nature-products which are just beginning to pass into the sphere of Labour. For here it is pure purchase and sale that are going on. This is the associative method of managing things.

The three kinds of money must be treated in different ways. In the first place, gift-money, which is the oldest, must be handed over to an Association which will bring the valueless money back again into the whole economic process, by uniting it with Labour at the point where the Nature-process begins. There can be no economic difficulty in this. What then will be the essential difference from the existing practice? It will be this: In a self-contained economic realm — which, as we saw, is not like a national economy bordering on others, where exports and imports can be carried on — three distinct domains arise, so far as money is concerned: — the domain of loaned money, the domain of purchase-money and the domain of gift-money. And when anything occurs which would otherwise have had to be corrected by export and import from another country, it will be corrected by the three domains. If purchase-money sets up a disturbance, there will be a corresponding flow between the spheres of purchase-money, loaned money or gift-money. These things will adjust themselves of their own accord. Irregularities will undoubtedly arise, and having arisen they must correct themselves. Life cannot go on without irregularities coming in. It is an irregularity when the stomach is full. Accordingly digestion has to follow. In the same way circumstances must continually arise under which, for certain commodities, purchase-money is too cheap or dear — and then the cheap money will flow into the other domain, so that on the other side it becomes dearer again as purchase-money. What would otherwise have been corrected by export and import will now correct itself within the self-contained economy, All that is required is actual human intelligence; this will be brought into the process through the Associations, which will be there observing things with their collective experience and taking the proper corresponding measures.

It is necessary above all to grasp the essential nature of money. People fail to grasp it precisely because it is always there before them without their being able to see what it really is. In the social organism there is no such thing as “money as such,” there are only these three kinds of money. Moreover, each kind of money only becomes what it is at the moment when it is actually entering into the economic process or passing over from one form of economic process to another. In the very process, it is constantly being changed. The point is that we must learn to know money properly, before we can pronounce what part it plays when it becomes an expression of the price of something else. To penetrate the economic process clearly, we must not remain at the surface, merely observing how things appear on the surface. Seen on the surface a 10-franc piece is of course a 10-franc piece today, no matter whether 1910 or 1915 or 1920 is inscribed on it. Outwardly considered it is always the same 10 francs, and of course in ordinary sale and purchase it behaves accordingly. I do not observe that a difference has taken place, till I have less of it — or things have become dearer. But in this very “having less” or “becoming dearer,” there lies inherent what I expounded to you today as the greater or lesser age of the money. To perceive the economic process clearly, we cannot merely speak of cheap or dear money, of cheap or dear commodities. We must find out what money is in its real essence; this must first be recognised and known. For it is with money that we master the economic process nowadays. (We shall show tomorrow how substitutes for money have to be treated in a similar way).