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                            HARVARD COLLEGE
                                LIBRARY

                                FROM THE

                           QUARTERLY JOURNAL
                              OF ECONOMICS



                         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




                                  THE
                             VALUE OF MONEY

                                   BY

                      B. M. ANDERSON, JR., PH. D.
          ASSISTANT PROFESSOR OF ECONOMICS, HARVARD UNIVERSITY
                        AUTHOR OF "SOCIAL VALUE"


                                New York
                         THE MACMILLAN COMPANY
                                  1917

                         _All rights reserved_



                            COPYRIGHT, 1917
                        BY THE MACMILLAN COMPANY
             Set up and electrotyped. Published May, 1917.



                                   To

                             B. M. A., III
                                  AND
                                J. C. A.

                     WHO OFTEN INTERRUPTED THE WORK
                     BUT NONE THE LESS INSPIRED IT




PREFACE


The following pages have as their central problem the value of money.
But the value of money cannot be studied successfully as an isolated
problem, and in order to reach conclusions upon this topic, it has been
necessary to consider virtually the whole range of economic theory; the
general theory of value; the role of money in economic theory and the
functions of money in economic life; the theory of the values of stocks
and bonds, of "good will," established trade connections, trade-marks,
and other "intangibles"; the theory of credit; the causes governing the
volume of trade, and particularly the place of speculation in the volume
of trade; the relation of "static" economic theory to "dynamic" economic
theory.

"Dynamic economics" is concerned with change and readjustment in
economic life. A distinctive doctrine of the present book is that the
great bulk of exchanging grows out of dynamic change, and that
speculation, in particular, constitutes by far the major part of all
trade. From this it follows that the main work of money and credit, as
instruments of exchange, is done in the process of dynamic readjustment,
and, consequently, that the theory of money and credit _must be a
dynamic theory_. It follows, further, that a theory like the "quantity
theory of money," which rests in the notions of "static equilibrium" and
"normal adjustment," abstracting from the "transitional process of
readjustment," touches the real problems of money and credit not at all.

This thesis has seemed to require statistical verification, and the
effort has been made to measure the elements in trade, to assign
proportions for retail trade and for wholesale trade, to obtain
_indicia_ of the extent and variation of speculation in securities,
grain, and other things on the organized exchanges, and to indicate
something of the extent of less organized speculation running through
the whole of business. The ratio of foreign to domestic trade has been
studied, for the years, 1890-1916.

The effort has also been made to determine the magnitudes of banking
transactions, and the relation of banking transactions to the volume of
trade. The conclusion has been reached that the overwhelming bulk of
banking transactions occur in connection with speculation. The effort
has been made to interpret bank clearings, both in New York and in the
country outside, with a view to determining quantitatively the major
factors that give rise to them.

In general, the inductive study would show that modern business and
banking centre about the stock market to a much greater degree than most
students have recognized. The analysis of banking assets would go to
show that the main function of modern bank credit is in the direct or
indirect financing of corporate and unincorporated _industry_.
"Commercial paper" is no longer the chief banking asset.

It is not concluded from this, however, that commerce in the ordinary
sense is being robbed by modern tendencies of its proper banking
accommodation, or that the banks are engaged in dangerous practices. On
the contrary it is maintained that the ability of the banks to aid
ordinary commerce is increased by the intimate connection of the banks
with the stock market. The thesis is advanced--though with a recognition
of the political difficulties involved--that the Federal Reserve Banks
should not be forbidden to rediscount loans on stock exchange
collateral, if they are to perform their best services for the country.

The quantity theory of money is examined in detail, in various
formulations, and the conclusion is reached that the quantity theory is
utterly invalid.

The theory of value set forth in Chapter I, and presupposed in the
positive argument of the book, is that first set forth in an earlier
book by the present writer, _Social Value_, published in 1911. That book
grew out of earlier studies in the theory of