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Child labor laws of today years were put to work for long hours under frightful conditions. Underpaid and underfed, deprived of schooling, they grew up to be physically and intellectually unfit and developed into inferior citizens. [187] Child labor was thought to be cheap, and from the employer’s point of view it was; but in the long run society found it to be incalculably expensive. Unrestricted child labor increased the number of illiterates, promoted the spread of disease and crime, augmented poverty, and bred discontent. The child is the father of the man; and as our children are cared for so will the future manhood and womanhood of the nation be. No fewer than two million persons under fifteen years of age are engaged in some form of wage-earning occupation in the United States today. Since they are unable to protect themselves against overwork and underpayment, the state must see to it that they are treated by their employers with consideration and humanity.
The laws relating to child labor differ considerably in the various states; in some the provisions are much stricter than in others. In general the tendency is to prohibit the regular employment of children under fourteen years of age. Many of the states forbid the employment of persons under sixteen years of age in night work or in certain dangerous occupations, such as mining. The hours of labor for persons under sixteen are also limited in some states to not exceeding eight per day. Many other provisions restricting child labor are now in force, and year by year new limitations are being added.[188] In 1916 Congress undertook to place a general restriction on child labor throughout the entire country by passing a law which forbade the transportation and sale in interstate commerce of any goods made in whole or in part by children under a designated age-limit. The Supreme Court of the United States held this law to be unconstitutional, however, declaring that the authority to regulate commerce among the states does not empower Congress to control the conditions of industry within the state boundaries. Congress has since placed a ban upon child labor in another way, namely, by providing that the profits of these industries which employ children shall be taxed more heavily than the profits of those concerns which do not.[189]
The arguments for minimum wage laws
Minimum Wage Laws.—Investigations into the subject made some years ago disclosed the fact that not only were women and children frequently overworked in industries but that they were often underpaid as well. One reason for this underpayment was that many of the women and children workers lived at home and did not need to be entirely self-supporting. They merely contributed to the general family earnings. They were thus in a position to work for smaller wages than if they were entirely self-dependent. But there were also many thousands of women and children who had to support themselves entirely from their own earnings and to these the low rate of wages meant hardship and suffering. It meant undernourishment, physical break-down, and premature old age. It led to pauperism and immorality. So the laws have once more intervened to protect the well-being of the race against the fruits of industrial injustice by providing that the wages of women and children in industry shall not fall below a certain minimum.
Nature of these laws.
Many of the states have put these minimum wage laws upon their statute books. Sometimes the minimum rate of wages is fixed in the law; more often it is determined in the case of each industry by a state board after an investigation. The minimum rate is set at such a point as will enable the wage-earner to be self-supporting. Here, again, the basic principle is that the actual cost of production, including the cost of protecting society against things detrimental to it, should be paid by the public which buys the goods. One practical difficulty connected with the minimum wage plan is that it tends to throw the less efficient employees out of work altogether. The employer who is forced by law to pay a fixed minimum in wages, no matter how unskillful the worker may be, will promptly dismiss all those who do not give him, in work, the worth of their wages. If a minimum wage is established in all industries, where will the least skillful find employment?
Some practical difficulties.
Causes of unemployment
The Problem of Unemployment.—The greatest of all economic wastes today is that which results from unemployment. The ideal condition would be to have everybody employed all the time. If that could be accomplished
we could produce a great deal more each year at lower cost. Unemployment means that idle men must use what other workers are producing. But it is not possible to do away with unemployment altogether. Some trades are seasonal in character, that is to say, busy at one period of the year and slack during others. In northern regions the building trades, bricklaying, outdoor carpentry, and so on, are in this category. The larger part of the unemployment, however, is due to other than seasonal causes. It is due rather to trade depressions which from time to time cause the shutting down of industrial establishments and it is caused in some degree by the lack of careful planning on the part of the employer. The number of unemployed workers throughout the country varies greatly from time to time. It may be as low as five per cent or as high as forty per cent of the entire number.
Some suggested remedies
Various plans for lessening the evils of unemployment have been suggested, but they all present some practical difficulties. Better vocational training would reduce the number of unskilled workers; and it is the unskilled who contribute most largely to the ranks of the unemployed. The establishment of public employment offices has done something to bring workers into touch with available jobs. It is proposed that we have a more careful planning of state and municipal improvements so that the heaviest demand for labor on public works would come at times when unemployment is most prevalent—this, it is urged, would help alleviate the trouble even though it might not go very far in solving the whole problem. Much would be accomplished by the better organization of industrial production and by some scheme of co-operation among employers which would enable workers to be transferred from one industry to another. Great practical obstacles are in the way of doing this on a large scale.
How progress toward a solution of the problem is being made.
Some large concerns have already adopted the plan of setting aside each week a certain percentage of the total pay roll as an unemployment reserve. Then, whenever workers are temporarily out of employment through the slackening of business and not through any fault of their own, a certain weekly wage is paid to them from this reserve. Something will also be
accomplished in the way of reducing unemployment by better vocational guidance, for young men and women often go into employments which afford no chance of promotion and which they subsequently find to be unsuited to their tastes. Many large industries now bestow great care upon the selection of new employees. All applicants are dealt with through a special official known as the employment manager, whose function it is to make reasonably sure that the applicant is fitted for the position. Foremen and bosses are not allowed to discharge employees at will. The complaints must first be referred for investigation to the employment manager’s office. This plan will also help alleviate unemployment if it becomes general.
Unemployment insurance.
Unemployment insurance has been tried in a few European countries and has been advocated in America. This plan contemplates that each employer shall contribute to a fund from which a stated wage scale shall be paid to those who remain out of work through no fault of their own, or that the government shall provide such a fund from the proceeds of taxes. It is easy to see that a scheme of this sort might be seriously abused, yet so long as the problem of unemployment remains serious we must strive to find some way of solving it.
Old-Age Pensions.—Most wage-earners do not save enough to provide for themselves in old age. The result is that after long years of toil they are dependent upon their children, or must eke out a precarious existence by doing odd jobs, or must be supported by the public poor-relief funds. This is not a desirable state of affairs and in some European countries, notably in Great Britain and in Germany, systems of old-age pensions for workers have been established. In Germany the worker pays a small amount each week into the fund; the employer pays an equal amount and the government pays the rest. In Great Britain the employers and the government pay it all. Every wage-earner, on reaching old age, receives a small weekly allowance for the rest of his days.[190] The cost of an old-age pension system is enormous, but in the long run it is likely to represent real economy. Sooner or later the system will probably be established in this country; the only question is whether, when it comes, the wage-
The experience of Great Britain and Germany.
The patriotism of American labor. earner should be required to pay a regular contribution during the years in which he is able to do full work.
American Labor and the War.—Among the various factors which helped to win the World War the loyalty and enthusiasm of American labor should be accorded a high place. War always creates a great shortage of workers, partly because so many able-bodied men are taken into the army and partly because of the tremendous need for workers in munition plants and other war industries. During war, therefore, the labor organizations are always in a position to make demands which cannot well be refused. It is quite true that American labor took advantage of its opportunities during the World War; but so did the employers. The wages of labor rose everywhere, as did the profits of industry. Nevertheless it can fairly be said that labor co-operated with the government at all the essential points and produced the uninterrupted flow of materials which was needed to ensure victory. Certain it is that without this co-operation on the part of labor the United States could not have figured so prominently in deciding the ultimate issue of the great conflict.
General References
I L , Economic Development of the United States, pp 491-511; R T E , The Labor Movement in America, pp 34-91 (Growth and Present Conditions of Labor Organizations);
T. S. A and H. L. S , Labor Problems, pp. 461-501 (Labor Laws);
F. T. C , Organized Labor in American History, pp. 11-44 (Epochs in the History of Organized Labor); pp. 169-197 (Labor Parties); pp. 198-225 (Ideals of the Wage Earner);
R. F. H , Trade Unionism in the United States, pp. 254-275 (Collective Bargaining);
J R. C and J. B. A , Principles of American Labor Legislation, pp. 35-90 (Individual Bargaining);
S G , American Labor and the War, passim
Group Problems
1. The origin, growth, and aims of labor organizations. The organization of industry before the Industrial Revolution. Rise of the factory system. Creation of a labor class. Early conditions of factory employment. Beginnings of labor organizations. Early attitude of the law and the courts. Growth of labor organizations during the past half century. Central organizations and national
bodies. Present-day aims of labor organizations economic, social, and political. Specific features of organized labor’s program. Labor as a factor in politics. The movements for industrial democracy References: T S A and H L S , Labor Problems, pp 214-279; S W , History of Trade Unionism, pp 1-56; 431-541; M B , Short History of the American Labor Movement, pp 47-79; F T C , Organized Labor in American History, pp 11-44; 198-225; R F H , History of Trade Unionism in the United States, pp 211-252 (The Law in Relation to Labor); J R C (editor), History of Labor in the United States, passim; R T E , The Labor Movement in America, pp 34-91; P F B , History of the I. W. W., pp. 83-112 (The I. W. W. vs. the A. F. of L.).
2. The American Federation of Labor: its history, aims, and achievements. References: S G , American Labor and the War, pp. 186-196; J M , Organized Labor, pp. 397-406; F. T. C , History and Problems of Organized Labor, pp. 75-82; M R. B , Short History of the American Labor Movement, pp. 86-149; G. G. G , Organized Labor in America, pp. 82-99; H M , American Labor Unions, pp. 11-28.
3. The arbitration of industrial disputes. References: T. S. A and H S , Labor Problems, pp. 295-332; S W , Industrial Democracy, pp. 222-246; N. P. G , Methods of Industrial Peace, pp. 301-345; R. T. E , The Evolution of Industrial Society, pp 374-397; J M , Organized Labor, pp 337-346; F W T , Principles of Economics, Vol II, pp 303-322
4. The general principles of labor legislation. References: W S J , The State in Relation to Labor, pp 1-32; F W T , Principles of Economics, Vol II, pp 285-302; J R C and J B A , Principles of Labor Legislation, pp 1-34; H S P , Labor Laws and Their Enforcement, passim
Short Studies
1. The four epochs in the history of organized labor. F. T. C , Organized Labor in American History, pp. 11-44.
2. Labor and politics. F. T. C , History and Problems of Organized Labor, pp. 169-197.
3. The Knights of Labor: why they failed. M R. B , Short History of the American Labor Movement, pp. 116-126.
4 The right to strike. J M , Organized Labor, pp 299-323
5 Collective bargaining. Final Report of the U S Industrial Commission, pp 843-847
6 The use of injunctions in labor disputes. G L B , Getting a Living, pp 548-580; J R C , Trade Unionism and Labor Problems, pp 156-163
7 The Kansas plan. H J A , The Party of the Third Part, pp 16-91
8. Workmen’s compensation. J R. C and J. B. A , Principles of American Labor Legislation, pp. 356-385. See also the publications on this subject issued by the National Industrial Conference Board.
9. Women and children in industry. T. S. A and H. L. S , Labor Problems, pp. 19-67.
10 The problem of unemployment. E T T , Social Problems, pp 140159; W H B , Unemployment, 3d ed , pp 1-15 (Great Britain)
11 Profit sharing as a solution of industrial problems. T S A and H L S , Labor Problems, pp 333-378
12 Old age pensions. W H D , Social Insurance, pp 128-165; F W L , State Insurance, pp 148-170
Questions
1. Explain why labor organizations came into existence during the nineteenth century. On the whole have they been a benefit to industry or not? Give your reasons.
2. Give some reasons for expecting trade unions to be stronger in certain employments than in others. In which of the following employments would you expect the unions to be strong, and in which would you expect them to be weak: (a) railroading; (b) domestic service; (c) school teaching; (d) farming; (e) mining; (f) steel-making? Give reasons for your expectations in each case
3 With what points in the program of the American Federation of Labor do you agree and with what ones do you disagree?
4 The closed shop is sometimes criticised as being “un-American” and the open shop has been called the “American plan” What does this mean?
5 Are there any employments, public or private, in which strikes should not be permitted?
6. Why should the consumer pay the costs of all industrial accidents? Explain how he does so where workmen’s compensation acts have been passed.
7. In your opinion would the legislature be justified in limiting to eight hours per day the labor of (a) women in candy factories; (b) men who work on farms; (c) men who work in coal mines; (d) physicians; (e) waitresses in hotels; (f) female servants; (g) members of the fire-protection service in cities; (h) motormen on street cars? Give your reasons in each case.
8. Give your views as to the minimum age at which any person should be permitted to engage in regular employment for wages. At what age should employment in night work be permitted? Should persons under fourteen years of age be allowed to work for wages after school hours, on Saturdays, and during vacations?
9 A girl of sixteen has graduated from grammar school and could obtain a position as clerk in a millinery store at eight dollars a week She is living at home and does not have to support herself But the minimum wage for clerks in stores happens to be ten dollars per week and the owner will not pay so much. Is there any injustice here?
10. How can the evil of unemployment be reduced? What abuses might arise in connection with unemployment insurance? Who pays the cost of unemployment
now? Argue whether we should or should not place industrial unemployment on the same basis as industrial accidents.
Topics for Debate
1 The demand for collective bargaining is (or is not) justified
2 A plan of old-age pensions, like that now maintained in Great Britain, should be established in the United States.
CHAPTER XXII
CURRENCY, BANKING, AND CREDIT
The purpose of this chapter is to explain what money is, what purposes it serves, how banks conduct their business, and how credit facilitates trade.
Money supplants barter
The Origin of Money.—The use of money is one of the marks of civilization. In primitive communities money was unknown. Buying and selling was by barter, the exchange of one commodity for another. The man with too much corn exchanged corn for cattle or for a boat or for skins with which to clothe himself. But exchange by barter is a slow and clumsy method because it means that two persons must be found each of whom wants exactly what the other has to sell, a thing which does not easily happen. With the growth of trade, accordingly, it became necessary to find a medium of exchange, in other words some single commodity which is so readily exchangeable for all other commodities that it can be used to facilitate buying and selling. Some of the Indians of North America used the ends of shells, or wampum, for this purpose. The early colonists in Virginia chose tobacco as a temporary medium of exchange, it being in universal demand. People accepted tobacco in exchange for things which they wished to sell, and gave tobacco for things which they desired to buy. This was not because they wanted tobacco for their own use but because of all commodities in the colony tobacco was the most easy to exchange for other things at a moment’s notice. No ordinary form of merchandise, however, makes an entirely satisfactory medium of exchange and all of them in time gave way to the precious metals, gold and silver, which are now everywhere used for this purpose.[191]
Money as a standard of value and a measure of deferred payments
The Functions which Money Serves. Money, however, serves not only as a medium of exchange but as a standard of value and a measure for future payments. Money is the common denominator by means of which we express the value of different commodities. If money were not in existence, how could we state the value of anything? It would be of little avail to say that a suit of clothes is worth ten hats, for this would merely beg the question: How much is a hat worth? Money performs the function of providing a uniform scale into which all values can be translated. When we say, therefore, that a suit of clothes is worth forty dollars and that hats are worth four dollars apiece we are measuring both commodities according to the same standard of value. Money also facilitates the use of credit by providing a measure for deferred payments. People cannot well agree to indefinite future obligations; they must know exactly what a debt amounts to. The use of money enables men to borrow today with the understanding that they will repay the same amount at some future date.
The qualities which money must have:
Characteristics of Money.—Gold and silver are best adapted to facilitate exchange because they possess, in high degree, certain qualities which money must have in order to fulfil its functions properly. What are these qualities? To serve acceptably as money a substance must have, in the first place, some value in itself; it must therefore have utility as a basis of value. A worthless substance, which nobody wants, would not do. Second, it must not only have value but stability of value. To serve efficiently as money a metal must not be subject to wide and frequent fluctuations in what it is worth. A substance which might be worth much today and little tomorrow would not be satisfactory. Gold and silver, being produced in limited quantities, are more nearly stable in value than any other metals, gold being particularly so. Third, the metal used as money must possess relatively high value in proportion to its bulk so that it can be easily passed from hand to hand. There was a tradition in ancient Greece that Lycurgus compelled the Lacedaemonians to use iron money in order that its weight might
4. Durability.
deter them from overmuch trading. If iron were used as currency today a dime would weigh more than a pound.[192] In a word the metal used as money must be portable, easy to carry around. Fourth, it must be relatively indestructible, not subject to rapid decay or rusting. Gold and silver satisfy this requirement, for time does not destroy their value nor do they suffer much wear and tear through handling. It is believed that some of the gold which is in the coinage of European countries today served as money in the time of the Romans. Fifth, it must be homogeneous, that is, it must not vary in quality, otherwise equal amounts of it would not have the same value. In order that we may reckon things in terms of money the units must be equal and similar so that twice one will always make two. If we were to use diamonds as money, it would not always happen that two stones would be worth exactly twice as much as one. Sixth, it must be easily divisible without loss of value, for we need small units of money as well as large ones. One great difficulty which primitive people found in using the skins of animals as money was that they could not be cut into portions without destroying their value altogether. Nobody would take, for example, a quarter of a skin in payment for a basketful of corn. But gold and silver can be divided at will and yet retain an exactly proportionate value. Finally, it must be a metal or other substance the genuineness of which can be easily determined. If every person who receives money had to scrutinize, weigh, and test it, the processes of trade would be intolerably delayed.[193] Gold and silver may not themselves be readily cognizable by the uninitiated, but they are easy to stamp into coins with a stamp or design and this impression cannot be easily counterfeited. The various countries of the world adopted gold and silver as their chief media of exchange because these metals fulfil in the largest degree the foregoing requirements. For small units of currency nickel and bronze are utilized because subsidiary coins of gold and silver would be too small.
The Coinage of the United States.—In the United States gold is the standard of values. This does not mean that gold is circulated from
5. Uniformity.
6 Divisibility
7. Cognizability.
Gold is the American standard of values.
hand to hand in every transaction, but merely that all economic values are expressed in terms of gold coin. The actual payments may be made in paper notes, or in silver, nickel, or copper coins. The monetary system of the United States is based upon the decimal system, which was adopted in 1784 at the suggestion of Thomas Jefferson. This means that we reckon in fractions and multiples of ten—ten cents one dime, ten dimes one dollar, and ten dollars one eagle. For convenience there are also additional coins, such as nickels, quarter dollars, half dollars, and half-eagles. No gold dollars are now coined, as they were found to be too small for convenience. [194] The mint has also ceased coining quarter eagles but continues to make five, ten, and twenty dollar gold pieces although these coins remain for the most part in the banks where they are held as reserves. Very little gold coin is in circulation anywhere in the world today. The coining of money is wholly within the jurisdiction of the national government; no state is allowed to make or issue coins. The making of coins takes place at four mints, which are located at Philadelphia, New Orleans, Denver, and San Francisco.[195] If you look at the reverse side of a recently minted coin, you will find, near the base, a small letter indicating the mint at which the coin was struck; if there is no such letter, the coin was minted at Philadelphia.
The ratio between gold and silver.
The United States mints. In 1792. In 1834 In 1873.
The Controversy over Bimetallism.—In 1792, when the first American mint was established, Congress provided by law that there should be two monetary units, the gold dollar and the silver dollar—the ratio between the two, in terms of weight, being fixed at fifteen to one. Any person bringing gold or silver bullion to the mint was entitled to have it made into coins at this ratio, which corresponded to the relative market value of the two metals in 1792. Silver eventually cheapened in relation to gold, however, and in time only silver bullion came to be coined. So Congress in 1834 reduced the weight of the gold dollar and made the ratio sixteen to one. This, in turn, proved to be an under-valuation of silver, and no silver now came to the mint to be coined.[196] In 1873, after silver dollars had practically dropped out of
circulation Congress abolished the free coinage of silver altogether [197] Presently, however, there was a popular demand for a resumption of silver coinage and the minting of silver dollars was recommenced,[198] but only on a limited scale; and in 1893 it was once more abandoned.[199]
In 1893.
This action on the part of Congress raised a great hue and cry in certain sections of the country, especially in the South and West. Free coinage of silver was desired not only by owners of mines who had silver to sell but by large numbers of farmers who believed that gold was becoming too scarce to serve as the sole standard of value. Scarcity of gold meant scarcity of money, and scarcity of money meant low prices for wheat. If money were plentiful, prices would go higher, and the way to get more money was to coin into dollars all the silver that would come to the mint. That was the farmers’ argument.
The “Cross of Gold” Campaign.—The leaders of the Democratic party took advantage of this widespread agricultural grievance. At the national convention of that party, held at Chicago in the summer of 1896, Mr. W. J. Bryan swept the delegates off their feet with his denunciation of the “few financial magnates who corner the money of the world” and his plea for the poor man’s dollar. “You shall not press upon the brow of labor this crown of thorns”, he declaimed. “You shall not crucify mankind upon a cross of gold.” The delegates, amid tumultuous cheering and enthusiasm, thereupon nominated the young orator from Nebraska as their candidate for President and made the free coinage of silver at a ratio of “sixteen to one” a fundamental part of the Democratic platform in the election campaign. But Bryan was overwhelmingly defeated and the clamor for free silver soon subsided. In 1900 Congress passed the Currency Act, which declared gold to be the sole standard and directed the secretary of the treasury to maintain all other forms of currency at a parity with gold. This means that every silver dollar, whether the silver which it contains be worth a dollar or not, is guaranteed by the national government to be worth a gold dollar.
Paper Money.—Our experience with paper money goes back to colonial days when bills of
Final settlement of the question in 1900
Our early experience with
paper currency. What the constitution provides as regards paper money
credit were issued by Massachusetts to pay the costs of the expedition against Quebec in 1690. But no great amounts were issued until the Revolutionary War; then the various state governments as well as the Continental Congress printed and issued notes to the par value of nearly half a billion dollars. In the earlier years of the war this paper currency circulated at its face value although there was no gold or silver reserve behind it; but as the struggle dragged on and notes by the million kept being issued they began to depreciate until eventually this continental paper currency was worth only a fraction of a cent per dollar Hence the origin of the slang expression “not worth a continental”. The notes for the most part were never redeemed; they merely became worthless and passed out of circulation.
Naturally this experience made the people averse to paper money and when the constitution of the United States was framed it contained a provision that “no state shall emit bills of credit (or) make anything but gold and silver coin a tender in payment of debts”. It was strongly urged that the national government should also be prohibited from issuing paper money, but in the end it was decided not to make any express prohibition, so the constitution is silent as regards the authority of the national government to emit bills of credit. It neither gives this power nor denies it. In due course, however, Congress authorized the issue of legal-tender notes or greenbacks, and the Supreme Court upheld its right to do this on the ground that the constitution expressly gives Congress the power to borrow money and that the issue of paper money is a reasonable method of borrowing. But although the national government has itself the legal right to issue paper money, either with or without a reserve behind it, most of the paper money now in circulation is issued by the federal reserve board or by the federal reserve banks under authority granted by Congress.
The seven kinds of paper money in use
Paper Notes now in Circulation.—There are several kinds of paper notes now in circulation. [200] These include silver certificates, gold certificates, treasury notes, and greenbacks issued directly by the national government, national bank notes, federal reserve notes, and
federal reserve bank notes. The provisions for the redemption of these different types of paper money vary greatly, and each is protected by a different reserve, but in actual fact the holder of any unit of paper money can obtain gold for it if he so desires. This is true even of the silver certificates which, strictly speaking, are redeemable only in silver dollars. The arrangements under which the national banks, the federal reserve banks, and the federal reserve board are permitted to issue paper money will be discussed presently.
Paper money has some advantages in convenience and cheapness
Why do we have paper money? Chiefly because it is, in many respects, more convenient for use than metallic money. In large amounts it is not so bulky as silver or gold would be. There is also the advantage that when paper money wears out it can be cheaply replaced. If gold coins were continually in circulation from hand to hand, they would gradually wear down and the monetary loss would be considerable. Hence it is better to keep the gold in the bank vaults and circulate the paper, which represents gold, in its stead. But a sound system of paper money should always provide for the redemption of the notes, which means that the notes should have an adequate reserve behind them. This reserve should be in gold or in the equivalent of gold. Unredeemable paper money, issued without an adequate reserve behind it, leads practically always to depreciation and thereby to heavy losses on the part of the people who have taken the money in good faith. That was what happened in the case of the assignats of the French Revolution, the continental currency in the American Revolution, and the paper money of several European countries during the World War.[201] It is folly to try to finance a war or any other national enterprise by issuing fiat currency, as it is called, which is paper currency with only the word of the government and no substantial reserve behind it. Better tax the people outright than make them take money as legal tender which is not worth what it purports to be.[202]
Inconvertible paper money.
Why not abolish money?
Radicals sometimes say: “Let us do away with money altogether”. Instead of money, they say, we might use “labor checks”, each check representing a given
amount of labor One hour of labor, let us say, would then be the standard of value instead of 23.2 grains of gold. This arrangement, however, would not abolish money, but only change the nature of the basis upon which the value of money is calculated. The labor checks would be money in every sense of the word. There is only one way to abolish money and that is to go back to barter.