Subsection (11) separation of debt markets
The section starts with Commons pointing to Henry Sidgwick who used Macleod's distinction between ownership and materials. Sidgwick differentiated between wealth and capital; capital was the private ownership of wealth and wealth was the use value created by labor regardless of ownership. Sidgwick declares that interest is paid to the capital owner for use of their property in regards for more money in the future. Capital is defined as bonds, shares of stock and land by Sidgwick. He also recognizes, according to Commons, that a change in the interest rate will change the value of the capital to the private owner up or down. This will not result in any change from the community's point of view (does not constitute a change in real wealth).
How does the capital owner convert his capital into spending power? He converts it into bank deposits and draws down those deposits. This is important as Sidgwick is trying to define money against objections by people like William Stanley Jevons who says there is no standard definition for money. He (Sidgwick being quoted by Commons) writes that, "This general function of money is that of being “used in exchanges, and other transfers of wealth where the object is to transfer not some particular commodity but command over commodities generally: it is as a medium of wealth transfer that money is qualified for performing its other important function of measuring " The key point that Commons pends more time on is that economists must be broken of their mistaken misconception that what matters is the transfer of physical objecting to the idea that property rights are being transferred between owners.
The other important point Sidgwick and Commons are trying to make is that money includes notes but also checks and other documents that draw upon bank deposits. While there are some mechanical difference between them, ultimately they act as a form of money. In essence, anything that can be exchanged in return for a debt is form of money.
However, Commons takes one step further and points to the issue of discount. money must not be subject to a discount at the point of exchange or it is a form of capital and not money. bank deposits are a past due whereas bonds and stocks are a future due and therefore are a form of capital rather than money though they may at times act as money and can be converted into money in some cases. The key element is futurity. a past due debt has no futurity and is the same as cash. In the end, money in circulation for Commons was the actual physical currency in circulation whereas the vast majority of money was being exchanged as "debit money". Debit money was the exchange of banker deposits and the credits and debits as businesses and households engaged in transactions.
Macleod in Commons view was not saying that credit created wealth, but it assisted in the rate of production and wealth production. Debit money meant the economy could move at a much faster pace as opposed to when it was dominated by physical currency.
We then turn to some of capital definitions and capital yield. Commons defines intangible capital as the expected net income from future sales and incorporeal property as the expected payment of a debt in the future. But here again, Commons wants to clear up previous mistakes. Sidgwick advanced beyond Macleod in talking about short and long term interest rates. But, he makes a fatal error similar to Macleod.
Commons argues that Macleod and Sidgwick made a mistake by conflating manufacturing cost with merchant cost. The manufacturer has a positive cost of production in the classical economics sense. Commons argues that the primary cost of the merchant is not production but transference and deciding between options.
The bottom line of this section is Commons trying to clarify capital, money and wealth from my perspective. It is a confusing section and really requires the reader have a good working knowledge of both Macleod and Sidgwick to truly grasp the errors that Commons was trying to correct. I take away from this section that money is any device that does not change in value in and of itself and is sued in the transference of the ownership of material and immaterial items. This is nearly a 100 page section devoted to understanding Macleads negotiability of debt as a core part of capitalism.
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