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READINGS IN MONEY AND BANKING

       *       *       *       *       *

THE MACMILLAN COMPANY

NEW YORK. BOSTON. CHICAGO. DALLAS

ATLANTA. SAN FRANCISCO

MACMILLAN & CO. LIMITED

LONDON. BOMBAY. CALCUTTA

MELBOURNE

THE MACMILLAN CO. OF CANADA. LTD.

TORONTO

       *       *       *       *       *


READINGS IN MONEY AND BANKING

Selected And Adapted

by

CHESTER ARTHUR PHILLIPS

Assistant Professor of Economics in Dartmouth College
and Assistant Professor of Banking in the Amos
Tuck School of Administration and Finance







New York
The Macmillan Company
1921
All rights reserved

Printed in the United States of America

Copyright 1916
By the Macmillan Company

Set up and electrotyped. Published September, 1916.

Ferris Printing Company
New York City





PREFACE


Designed mainly for class room use in connection with one of the
introductory manuals on the subject of Money and Banking or of Money and
Currency, this volume, _in itself_, lays no claim to completeness. Where
its use is contemplated the problems of emphasis and proportion are,
accordingly, to be solved by the selection of one or another of the
available texts, or by the choice of supplementary lecture topics and
materials. The contents of the introductory manuals are so divergent in
character as to render possible combinations of text and readings that
will include, it is hoped, matter of such range and variety as may be
desired.

Fullness of treatment has been attempted, however, in the chapters
dealing with the important recent developments in the "mechanism of
exchange," and my aim has been throughout to select and, in many
instances, to adapt with a view to meeting the wants of those who are
interested chiefly in the modern phases of the subject.

For valuable suggestions in the preparation of the volume I am greatly
indebted to Professors F. H. Dixon and G. R. Wicker and Mr. J. M.
Shortliffe of Dartmouth, Professor Hastings Lyon of Columbia, Professor
E. E. Day of Harvard, and to my former teacher, Professor F. R.
Fairchild of Yale. I desire also to mention my great obligation to
authors and publishers who alike have generously permitted the
reproduction of copyrighted material.

CHESTER ARTHUR PHILLIPS.

Dartmouth College,
Hanover, N. H., July, 1916.




TABLE OF CONTENTS


   CHAPTER                                                       PAGE

        I THE ORIGIN AND FUNCTIONS OF MONEY                         1

       II THE EARLY HISTORY OF MONEY                               10

      III QUALITIES OF THE MATERIAL OF MONEY                       18

       IV LEGAL TENDER                                             26

        V THE GREENBACK ISSUES                                     33

       VI INTERNATIONAL BIMETALLISM                                71

      VII THE SILVER QUESTION IN THE UNITED STATES                 82

     VIII INDEX NUMBERS                                           115

       IX BANKING OPERATIONS AND ACCOUNTS                         121

        X THE USE OF CREDIT INSTRUMENTS IN PAYMENTS
          IN THE UNITED STATES                                    150

       XI A SYMPOSIUM ON THE RELATION BETWEEN MONEY
          AND GENERAL PRICES                                      159

      XII THE GOLD EXCHANGE STANDARD                              213

     XIII A PLAN FOR A COMPENSATED DOLLAR                         229

      XIV MONETARY SYSTEMS OF FOREIGN COUNTRIES                   246

       XV THE NATURE AND FUNCTIONS OF TRUST COMPANIES             256

      XVI SAVINGS BANKS                                           270

     XVII DOMESTIC EXCHANGE                                       290

    XVIII FOREIGN EXCHANGE                                        305

      XIX CLEARING HOUSES                                         355

       XX STATE BANKS AND TRUST COMPANIES SINCE THE PASSAGE
          OF THE NATIONAL BANK ACT                                381

      XXI THE CANADIAN BANKING SYSTEM                             406

     XXII THE ENGLISH BANKING SYSTEM                              435

    XXIII THE SCOTCH BANKS                                        474

     XXIV THE FRENCH BANKING SYSTEM                               488

      XXV THE GERMAN BANKING SYSTEM                               526

     XXVI BANKING IN SOUTH AMERICA                                559

    XXVII AGRICULTURAL CREDIT IN THE UNITED STATES                575

   XXVIII THE CONCENTRATION OF CONTROL OF MONEY AND CREDIT        606

     XXIX CRISES                                                  627

      XXX THE WEAKNESSES OF OUR BANKING SYSTEM PRIOR TO
          THE ESTABLISHMENT OF THE FEDERAL RESERVE SYSTEM         672

     XXXI THE FEDERAL RESERVE SYSTEM                              723

    XXXII THE EUROPEAN WAR IN RELATION TO MONEY,
          BANKING AND FINANCE                                     797

          APPENDICES                                              830




READINGS IN MONEY AND BANKING




CHAPTER I

THE ORIGIN AND FUNCTIONS OF MONEY

[1]In order to understand the manifold functions of a Circulating
Medium, there is no better way than to consider what are the principal
inconveniences which we should experience if we had not such a medium.
The first and most obvious would be the want of a common measure for
values of different sorts. If a tailor had only coats, and wanted to buy
bread or a horse, it would be very troublesome to ascertain how much
bread he ought to obtain for a coat, or how many coats he should give
for a horse. The calculation must be recommenced on different data,
every time he bartered his coats for a different kind of article; and
there could be no current price, or regular quotations of value. Whereas
now each thing has a current price in money, and he gets over all
difficulties by reckoning his coat at L4 or L5, and a four-pound loaf at
6_d._ or 7_d_. As it is much easier to compare different lengths by
expressing them in a common language of feet and inches, so it is much
easier to compare values by means of a common language of pounds,
shillings, and pence. In no other way can values be arranged one above
another in a scale: in no other can a person conveniently calculate the
sum of his possessions; and it is easier to ascertain and remember the
relations of many things to one thing, than their innumerable cross
relations with one another. This advantage of having a common language
in which values may be expressed, is, even by itself, so important, that
some such mode of expressing and computing them would probably be used
even if a pound or a shilling did not express any real thing, but a mere
unit of calculation. It is said that there are African tribes in which
this somewhat artificial contrivance actually prevails. They calculate
the value of things in a sort of money of account, called macutes. They
say, one thing is worth ten macutes, another fifteen, another twenty.
There is no real thing called a macute: it is a conventional unit, for
the more convenient comparison of things with one another.

This advantage, however, forms but an inconsiderable part of the
economical benefits derived from the use of money. The inconveniences of
barter are so great, that without some more commodious means of
effecting exchanges, the division of employments could hardly have been
carried to any considerable extent. A tailor, who had nothing but coats,
might starve before he could find any person having bread to sell who
wanted a coat: besides, he would not want as much bread at a time as
would be worth a coat, and the coat could not be divided. Every person,
therefore, would at all times hasten to dispose of his commodity in
exchange for anything which, though it might not be fitted to his own
immediate wants, was in great and general demand, and easily divisible,
so that he might be sure of being able to purchase with it, whatever was
offered for sale. The primary necessaries of life possess these
properties in a high degree. Bread is extremely divisible, and an object
of universal desire. Still, this is not the sort of thing required: for,
of food, unless in expectation of a scarcity, no one wishes to possess
more at once than is wanted for immediate consumption; so that a person
is never sure of finding an immediate purchaser for articles of food;
and unless soon disposed of, most of them perish. The thing which people
would select to keep by them for making purchases, must be one which,
besides being divisible, and generally desired, does not deteriorate by
keeping. This reduces the choice to a small number of articles.

By a tacit concurrence, almost all nations, at a very early period,
fixed upon certain metals, and especially gold and silver, to serve this
purpose. No other substances unite the necessary qualities in so great a
degree, with so many subordinate advantages. Next to food and clothing,
and in some climates even before clothing, the strongest inclination in
a rude state of society is for personal ornament, and for the kind of
distinction which is obtained by rarity or costliness in such ornaments.
After the immediate necessities of life were satisfied, every one was
eager to accumulate as great a store as possible of things at once
costly and ornamental; which were chiefly gold, silver, and jewels.
These were the things which it most pleased every one to possess, and
which there was most certainty of finding others willing to receive in
exchange for any kind of produce. They were among the most imperishable
of all substances. They were also portable, and containing great value
in small bulk, were easily hid; a consideration of much importance in an
age of insecurity. Jewels are inferior to gold and silver in the quality
of divisibility; and are of very various qualities, not to be accurately
discriminated without great trouble. Gold and silver are eminently
divisible, and when pure, always of the same quality; and their purity
may be ascertained and certified by a public authority.

Accordingly, though furs have been employed as money in some countries,
cattle in others, in Chinese Tartary cubes of tea closely pressed
together, the shells called cowries on the coast of Western Africa, and
in Abyssinia at this day blocks of rock salt; though even of metals, the
less costly have sometimes been chosen, as iron in Lacedaemon from
ascetic policy, copper in the early Roman republic from the poverty of
the people; gold and silver have been generally preferred by nations
which were able to obtain them, either by industry, commerce, or
conquest. To the qualities which originally recommended them, another
came to be added, the importance of which only unfolded itself by
degrees. Of all commodities, they are among the least influenced by any
of the causes which produce fluctuations of value. They fluctuate less
than almost any other things in their cost of production. And from their
durability, the total quantity in existence is at all times so great in
proportion to the annual supply, that the effect on value even of a
change in the cost of production is not sudden: a very long time being
required to diminish materially the quantity in existence, and even to
increase it very greatly not being a rapid process. Gold and silver,
therefore, are more fit than any other commodity to be the subject of
engagements for receiving or paying a given quantity at some distant
period. If the engagement were made in corn, a failure of crops might
increase the burthen of the payment in one year to fourfold what was
intended, or an exuberant harvest sink it in another to one-fourth. If
st