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CurrencyandCredit 10094788
CurrencyandCredit 10094788
AN D
C R ED IT
LO N G MA
39
N S,
IAWT REY
G REEN
PATE RN O STER
RO
AN D
L ON D O N
N EW
9 179
CO
YO RK
P R E F AC E
To add yet
o t he r th i n s b e i ng eq ua l
b
i
i
s
w
h
i
c
h
t
that p h ras e
y
g
s o fatally eas y fo r th eo ry to s t ep s t raigh t fr o m p r em i s e s
an o
to co nclu s i o n
an d
i t se lf i s i nad equ at e ,
treat m e n t
i ncom e
b ased
and th
on
wha t I hav e
e co ns um ers o u
up
to t h e
m e tho d
of
called th e co ns u m er s
t lay that i s
to say, s i m ply
pendi tures
i t lead s
the succeedi ng
pages
P REFACE
vi
It w i ll b e fo u nd t hat p r e w ar i n s t i t u t i o ns a nd con
Th i s
d i ri o ns ar e o fte n r e fe rr ed t o in th e p r es e nt t e n s e
i s no m o r e u n re a l than t o s p eak o f t h em i n th e pas t ,
a s t h i n s o f th e
n o w th e w ar i s n o t t ech n i
t
v
n
as
E
e
p
g
-
'
i n th e p r e v a i l i n g o b s cu r i t y i t i s i m p oss i b le
to s ay w h a t ca n o r ca n n ot b e r eg a r d e d a s n o r m a l o r
a c tu a l
ca
ll y o v e r
a nd
C hap t e r s X V
to
X IX
ar e occ u i e d
p
w i t h i l l u s t ra t i v e
xam p le s d ra w n fr o m a v a r i e ty o f p e r i o d s an d co u n t r i e s
I am i n d eb t ed t o t h e e d i t o r s o f t h e
E con om i c J our nal
fo r b r i n g i ng o u t the g r ea t e r pa r t o f C hap t ers X V a n d
X V I i n t h e i s s u es o f the J o u r na l fo r S ep te m b er a nd
M ar ch 1 9 1 8
e
'
u n e,
9I 9
H AW T RE Y
C O N T E N TS
P AG E
M ET ALL I C M O N E Y
PAP E R M O N E Y A N D TH E QU A N T I T Y TH E O R Y
TH E F O R E I G N E X C H A N G E S
SY S T E M S O F N O T E I SS U E
I N T E R N A T I O N A L C U R RE N CY M OV EM E N T S
II TH E ME C H A N I S M O F F O R E I G N E X C H A N G E
X
V I I I A C o NTR A C T I O N O F C R E D I T
FI N A N C I AL C R I S E S
.
M O N EY
XII
AN D
C O I N AG E
TH E TH EO RY
WAR
OF
B AN KI N G
F I N AN C E
WAR I N FL A T IO N
T H E A SS I G N A T S
TH E B AN K R E S T R I CTI O N
XV I I
A C HAN G E
OF
THE GOLD S T AN D AR D
THE
C O N CL U S I O N
7 97
STA N D AR D
TII E G OL D S T A N D AR D
AF T E R
0?
WAR
2 99
C HAPTER I
C
R E D I T W IT H OU T M O NEY
"
m
a!
money o f account
Even when money is used it may o c
c a s i o n al ly happen that the unit fo r the calculation o f debts
d iverges in some degree from exact correspondence w i th the
money in circulation In that case the distinction between
money and money o f account immediately becomes a practical
Th e value o f the standard coin will be quoted in terms
o ne
o f the money o f account and varying amounts o f th e standard
coin will be needed to pay a given debt This is an app ro x i
mation to the state o f affairs which we are assuming
But however conventional and a rbitrary the unit may be
once i t Is establ i shed as the basis o f the debts and pri ces and
val ues o f a market it i s bound to assume a certain continuity
I f the bargains o f a day were completed w ithin the day a n
d
everyone could exactly balance h i s debts again st h i s credits
the next day s business might start with an entirely new uni t
,
'
CRED IT W IT H OUT M O N E Y
'
C U RR E N C Y A N D CR EDIT
tate d
Th e
a n ti th e si s
quan ti ty , m eans th e
i s b et w ee n
s tu ff o f
d eb t
wh i c h d e bts
an d
(or
cr edi t.
c r ed i t s
are
C r ed i t ,
made
th e
no u n
of
WIT H O U T M O N E Y
C RED IT
'
'
CU RR E N C Y AN D CR EDI T
'
CRED IT W IT H OUT M ON E Y
'
C U RR E N C Y A ND CR ED IT
C R E D I T W IT H O U T M O NE Y
credit o r a credit
This is a l oose way o f describing a
double transaction The banker assumes an immed iate o b
l igation to his custom er in exchange fo r the customer s o h
ligation to him at a future date The banker s obligation or
'
C U R R E N C Y AND C R E D I T
IO
Th e
W IT H O U T M O N E Y
C R EDIT
It
le ss d rawn upon than usual and the dealers w ill give sm aller
orders to the manu facturers fo r the replenishment o f those
stock s Thus in either case a slackening in the creation o f
new credits means a diminution o f orders to the manu facturers
But the result o f this will be that the labour and plant o f the
community a re no longer fully employed and the total amount
o f wages and prots w ill be d iminished
Consequently the
expenditure o f the publ ic will begin to fall o ff But this will
rea ct on the sales o f the retailers and merchants They in
turn will further restrict their orders fo r fresh supplies o f goods
and so the original restriction o f cred it will tend to repeat and
rein force itsel f A co rrective tendency will however early be
at work
a restriction of the
bankers
bankers will n o t willingly acquiesce
in the co
age o f their prots and th ey will try
borrow They will in fact reduce
to tempt their customers
their charge for interest
I t should be obs
at quite apart from any deliberate
action by the bankers there i s in any case an important i n
As we have
u ence at work to lower the rat e o f interest
seen the curtailmen t o f credit occasions a agging o f the de
mand for commodities This flagging o f demand will produce
a fall o f prices The merchants w ill nd that their stock s o f
goods lose value while they hold them and this loss o f value
wil l dim inish the prot o ut o f which they pay interest o n the
loans with which these stocks are nanced Falling prices o f
themselves there fore make borrowing less attractive and re
duce the rate o f interest which borrowers are willing to pay
The bankers must reduce their charges o f interest accordingly
be fore they can even induce their customers to conti nue bo r
rowing on the diminished scale which their turnover o f goods
w i l l justi fy and i f these customers are to be tempted to i n
crease their borro wing the rate o f interes t m ust be reduced
even below this l o w level
If as is not impossible the bank e rs fail to e ncourage bo r
rowing i n thi s way the restriction o f credit and consequent
d epression o f trade will go on until disappointed merchants
are driven to borrow o n terms which they d o not hope will be
,
C U R R E N CY AN D C R E D I T
12
'
C U RR E N C Y AND C REDI T
I4
S e e ch ap
xvi
C RE D IT W IT H O U T M ON E Y
fo r th e
'
'
16
C URR EN CY
A ND CR EDIT
C HA P TER I I
M E TA LL I C M O NEY
17
18
W ear
effectively carri ed out i f all coin that is reduced
appreciably below the current weight is promptly withdrawn
i f there is no obstacle t o melting down coin fo r use other
wise than as currency then the value o i coin and the value
o f bullion can never diverge far fo r either can be transformed
into the other at a triing expense Gold as a commodity
will then be really the standa rd o f valu e A ny departure
from this system i s regarded under the cl assical theory as a
perversion The nature extent and causes o f such d epartures
we shall have to consider later In the present chapter we
shall assume that a system o f free coinage is faith fully and
e fciently maintained In the next chapter we shal l turn t o
the consideration o f systems in which the orthodox theory o f
free coinage is avowedly thrown asid
The most i mportant characteristics o f the classical theory
are that the value o f the monetary unit is determ ined by the
1
val ue o f the metal fo r purposes other than coinage and that
the supply o f money being de pendent upon the supply o f th e
metal cannot be arbitrarily incre a sed
If a gold coinage i s to be combined with a cre d it system
we have next to consider where the o ne will begin and the
other end A payment in coin being a l egal discharge O f a
debt while a payment in credit is n o t coin w ill always be
used in pre ference to credit unless there is some superiority
o f convenience o r other ad vantage in the use o f credit
Fo r
large payments the superior convenience o f credit is obvious
since it avoids the trouble o f counting han d ling and scrutin
ising the coin and the cost and risk o f transport and storage
Moreover the privileges o f a banker s custo mer are valuable
to the well to d o man and especially so to the t rader O f
course all these advantages presuppo se the solvency o f the
banker but we may assume that the risk o f failure o f a l arge
and well establi shed bank i f no t absol utely negligible is at
any rate small compared with the risk o f losing money which
instead o f being deposited at a bank is kept at a trader s
premises where the risk o f loss by theft falls o n him
Fo r smal l payments the advantages o f credit are not s o
,
Thi s i s
o nl y
true
sub ect
to
(see chap
M ETALL IC M ON E Y
19
ch ap.
Th i s d oes
n ot appl y
m o ney
iii
2
(s ee
C U RR E N C Y A N D CREDIT
20
METALLI C M ONEY
from
CURRENCY A ND CR EDIT
22
'
'
M E TA LL I C M ON E Y
23
pl oyment
gage m e n ts
C U RR E N C Y A N D CRED IT
24
o r nu
M ETALL IC MONEY
25
26
CURRE NCY A ND CR ED IT
M ETALLIC MO N EY
27
e ec ti ve
"
CURRENCY A N D CRED IT
28
'
M E T A LL I C M O N E Y
29
of
CHAPTER I I I
PAP E R M O NEY
AN D TH E
QUAN T I TY
H E O RY
30
31
in the banker s assets along with the other cred itors P aper
money o n the other hand derives its value from being legal
ten d er Th e debtor has the right to pay it and the creditor
i s b ound to accept it
Unless ( as occasionally happens) the
law is allowed to become inoperative the paper money cannot
fail to circulate at par
But this means at par with the money
o
f account no t w ith any physical standard o f value s uch as gold
or silver
Thus a bank note rep res ents credit ; a legal tender note is
i ts elf money
In its application nevertheless the d istinction
between them becomes uncertain While there are plenty o f
instances ( l ike the present British currency notes) o f i nd i s p ut
able paper money there a re many others where notes which have
been issued as evidence o f bank cred its have been made legal
tender I s i t in that case the document or the credit which it
represents that is really the legal means o f payment ? The
credit and th e d ocument are so in s eparably connected that it
is o ften i mpossible to say The Bank o f Engl and note is legal
ten d er in all payments above 16 5 but only so long as the bank
m aintains specie payments Here it seems clear that it is th e
bank s obligation to p ay that i s legal tender Yet the same
obl igati on i f represented no t by a promisso ry note but by a
d epo sit i s no t l egal tender
And i f a ban k with the privilege O f issuing legal tend er
no tes is allowed to suspe nd payments in cash is it still the
C U RR E N C Y A N D CRED IT
32
It
ev en
con ti n ue t o
are
h ap pen s
be
s om eti m es th a t n o te s
u s ed as a
wh i c h h av e
ce as e d to
be
c o n ve rt i bl e
m ean s
of
They
33
34
'
"
H
L
"
'
economic con d itions at the t wo epo chs are very nearly i denti
cal this wi ll be nearly true
) All that we have establ ished is
th a t i f every thi ng in the economic picture be painted in save
only the numbers to be expressed in term s o f the unit o f
va lue the n since the mutual proportions o f the s e numbers
are a lready determ in ed by the economic conditions the
number o f un its in any o ne will be directly proportiona l to
the nu mber in any other and in particular the prices o f com
m o d i t i es will be proportional t o th e number o f units o f value
contained in th e aggr egate o f bank cred its o r unspent margin
S uppose now th at money i s used
Money will be subs ti
tuted fo r cred it in a certain proportion o f the transactions
A certain propo rti on o f the purchasing power in bein gthat
i s to say o f what we have called the unspent margin will be
in the form o f money instead o f bank credits The extent to
which money i s held rather than credit will be wholly deter
mine d by the convenience o f th e people and their habits and
pre fe ren ces The un spent margi n i s n ow made up o f two
parts the money in circulation and the bank cred its outstand
ing Each is ex pres sible in terms o f the unit o f value and
the proportion o f one to t he other i s determined like al l the
other proportions by the economic conditions Provided
t here fore that all the economic co nditions are give n inclu d ing
the proportion o f ba nk credits to money we in fer that all
money val ues and in particular th e prices o f com modities
are d i rectly proportional to the quantity o f money i n circula
I n the case o f a free gold currency or a paper currency
t ion
m ainta ined at a xed gold value o n e o f the given econom ic
conditions must be that the value o f gold as currency i s equal
t o its value as a com modity and this i s su f cient to determine
In the case o f a paper currency wi th no
al l the other values
xed v al ue in t erms o f gold o r any other commodity the
p rinci ple at which we have arrived show s how i ts value i s
determ ined The val ue o f the unit is i nversel y proportional
H ere we have in its simplest
to the quantity i n circulation
for m what i s call e d the Quantity Theory o f money
B ut s o l ong as this principl e is subj ect to the limitation
th at a ll other e conomic cond i tions must be given i t is
,
'
0
.
CURREN CY A ND CRED IT
36
P A P E R M O N E Y AND QU A N TIT Y T H EO R Y
37
fo r a trader s business
It is a normal practice in the case o f
such a b usiness to borrow fo r short peri od s and this makes
po ssible a much nicer calculation o f b alances than in the case
o f an individual
A balance o f cash or credit is in itsel f a
o urce o f loss, since except in the case o f a deposit subj ect
to
s
notice it is earning no intere st and even a deposit subject to
n otice earns interest at less than the full rate By borrowi ng
to meet large disbursements and applying large receipts in
repayment o f borrowings a business concern can reduce this
loss o f interest to a m inimum Its power o f borrowing also
enables it to be ready fo r an un fo reseen emergency without
perpetually keeping a stock o f money o n hand fo r the purpose
As to the distribution o f the uns pent m argin o f purchasing
power betwee n cash and cre dit we have already seen that the
man rich enough to have a banking account will keep the
bulk o f h i s reserve balance in credit and only an unimportant
sum o f pocket money in cash The poor man keeps all his
reserve balance in cash except in so far as he puts it in the
savings bank and a deposit in a savings bank is rathe r an
investment than a part o f the unspent margin F o r a business
balances are kept in the form o f credit but the manu facturer has
constantly to draw o ut large sums o f cash to pay wages and
the retai ler the railway tram o r omn ibus company the collector
o f wo rking cl ass rents the theatre manager and oth ers whose r e
c e i p ts are m ainly in cash are continually paying cash into th e
banks The banks themselves keep reserves o f cash su ffi cient in
proportion to their liabilities to meet their customers demands
F o r each private individual the appropriate balance o f credit
and the appropriate balance o f cash will bear a dete rminate
proportion to his income ( no t o f course the same prop ortion
fo r different in d ividual s o r fo r the same individual at di ff erent
ti me s) F o r each business the appropriate bal an ces will l ike
wise be determ ined by conven ience but wi ll be proportional
rather to th e g ross transacti on s o r turnover than to the net
income o f the business Traders howeve r can regulate their
balances more closely Consequently their balances bear a
far smaller propo r tion to their turnover th an those o f private
.
CU RR ENC Y A N D CR EDIT
38
PA P E R M ON E Y A N D Q U A N T ITY T H EO RY
39
It d epend s
f
h
e p u rch as i ng po w er of th e i r b al an c es , but th ei r
t
i
n
s
o
t
o
e
c
t
a
p
h l ti mate l y gover n ed by th e p r i ces wh i ch r ul e i n t h e m ar et
9 Th
e as s ets h el d agai n s t th eir cap i tal bei n g e xcl ud ed
1
A poten ti a l ,
n o t an act u al ,
to ta l of wealth
on
p eopl e
ex
C U R R E N C Y A N D CRED I T
4o
We
ti me
ki
are spea
ng
h e re ,
o f cou rs e , of
th e am o un t o f cre d i t cr eat ed
per
u ni
'
'
C U RR EN C Y A N D C R ED I T
42
PA PE R
M O N E Y AN D QU A N T ITY T H E ORY
43
'
"
C U R R E NC Y AN D C R E D I T
44
'
sult s
S ee
in
al s o th e note at th e end o f t h i s
al gebrai c notati o n .
Chapt er for
a s tatem ent of th es e re
P A PE R M ON E Y AN D QU AN T IT Y T H E ORY
45
'
'
C URRE N CY AN D CRED IT
46
"
"
P A P E R M ON E Y A N D QUANT ITY TH EO RY
47
the volume o f tran sactions ; Over any period o f t ime the total
quantity o f credit and money multiplied by the average
number o f times every unit o f credit o r money has changed
hands in the course o f business must necessarily be equal to
the total value o f all the transactions in which credit o r money
has passed
H ere we have a formula which is applicable
without reservation to varying conditions
It is subject
however to the disadvantage that some o f the quantities it
employs are not themselves o f any separate importance in
economics
Among the transactions i n which money has
passed are many into which the use o f money o r bank credits
enters quite capriciously It is a matter o f chance whether a
particular purchase o f goods or securities i s paid fo r by cheq ue
o r by way o f a book credit and i f it is paid fo r by the latter
method the debtor may fo r the moment actually keep a larger
balance at his bank by reason o f the undischarged liability
than would otherwise be needed In the aggregate o f trans
actions the gross total o f business transactions where goods
or sec urities are bought in order to be sold again will count
fo r enormously more than the expenditure o f the private i n
dividual
The disbursements o f the private individual are
made o u t o f his income The turn over o f the trad er m ay be
many times greater than his income and hi s bank bal ance i s
far smaller in proportion to hi s turn over
Thus the total o f
transactions fo r th e purpose o f this version o f the q uantity
theory is arrived at by adding together tw o quantities the
Consumers income and the traders turn over which fo r other
purposes are to tally unl ike The traders turn over counts fo r
far more in the total than its actual share in determining the
quantity o f purchasing power in circulation would j usti fy and
1
f
n
d
its amount is a ffected by capricious a uncertain actors
And the rapid ity o f circulation o f money o r c redit i s n o t
a phenomenon which enters directly into anyone s experience
The b es t way to estimate the rapidity o f circulation o f a man s
,
o n ey
w ages repr es en t o nly 3 per c e nt o f th e t otal o f m oney tr an s a ct i o ns (
r
a
l
r
i
c
en e
P es , p 1 3 6
Pr o f
n s tru m e nts i n th ei r R el ati o n to
and C re di t
1
In
appl yi n g
th e
Irvi n g F i sh
Wages
er acc e p ts th e s am e es t i m at e
w ould pr o babl y be
near ly
hal f th e
P urch as i ng P ow er of M on ey
c o ns u m ers
i ncome
p,
CURREN CY AN D
48
C R ED IT
,
,
PA PE R M ON E Y A N D Q U A NTITY T H E O RY
49
d riving up prices more cash passes into circulation too and the
reserves are not only relatively but absolutely diminished And
at a time when the reserves are in the requisite proportion i f the
supply o f cash is d iminished fo r example by the withdrawal and
cancellation o f a cer tain amount o f legal tender paper the p ro
portion will be disturbed and the banks i f they are to restore
it must restrict the creation o f credit Such a withdrawal o f
currency will in the rst instance a ffect only the bank reserves
si nc e the customers o f the banks have the right to d raw out as
much cash as they please wi thin the li mits o f their credits and
the requirements o f the public for cash only change gradually
The note issu in g authority which regulates the supply o f
legal tender paper m oney i s really dependent upon the control
o f cre d it fo r passing the notes into circulation
I t may i n
crease o r di m inish the supply o f paper money but the quantity
in the hands o f the public and the value o f the moneta ry uni t
will be l ittle aff ected unless the banks proceed to increase o r
d i m inish the supply o f credit O f course s o long as the bank s
adhere to the recognised practice of preserving a xed p ro
portion between their cash reserves and thei r liabilities th ey
wi ll alway s tend to take the appropri ate action But they
may no t choose in all circumstances to observe this practice
o r t hey may fail to carr
Th e note issuing
y it o u t eff ectively
authority can d o l ittle more than give them the signal to ex
pan d o r contract credit and must rely o n them to take the
3 i ssue
1 h? 9 12
necessary measures
It i s
which d irectly affects th e va lue o f t he mone tary unit
The note issuin g authority may o f course be a Government
d irectly de fraying its own l iabilities with notes fresh from the
printing press When rst issued they swell the consumers
i ncome exactly like s o much credit created by the banks fo r
the nee ds o f commerce A nd i t may be that the banking
system i s so little developed that the notes d o no t come back
to the banks as they are spent I f the traders who sell to the
note holders keep their cash in the fo rm o f notes in their
strong boxes rather than in the form o f bank credits the notes
accumulate i n the s e strong boxes The traders spend them
d away agai n
o n replenish ing their stocks and s o they get pai
,
C U RR E N C Y AN D C R E D I T
50
'
P A P E R MO N E Y A ND QUA NTITY TH EO RY
51
,
,
C U RR E N C Y
52
AND
C R ED I T
borrow from the ordinary banks want legal tender notes and
fo r them the ban ks will act practically as intermed iaries fo r the
purpose o f obtaining advances from the central bank Thus
the credit operations o f the c entral bank form a very sub
s tan t i al part o f those o f the whole country
We can no w s ee what are the essential factors in the
regulation o f a paper currency Its value dep ends o n the
quantity issued Th e greater the number o f monetary units
in circulation the less other things being equal wil l be the
value o r purchasing power o f the u nit An increase or de
crease i n the amount in circulation has as we have seen
many complex reactions besides the tendency to produce an
inversely proportional change in the value o f the unit but
whatever allowance h as to be made fo r these reactions we
can still s ay that except s o fa r as the issue o f paper money
i s regulated and limited the val ue o f the m onetary unit is
j ust as liable to be indenitely depreciated as under a rgime
o f pure credit unsupported by money
The only e ffective method o f controlling the i ssues o f
paper money is to control the creation o f credit fo r the de
mand fo r legal tender money fo r circulation is consequential
upon the supply o f credit H ence the need fo r a central bank
I nevitably a central bank with a monopoly o f a
o f i ssue
legal tender note issu emust be subject to care fully devised
legal o r at any rate administrative restraints Indeed it goes
without saying that the sole right o f manu facturing the
mediu m in which debts may be law fully discharged cannot
be lig htly handed over to a private institution or even to a
State Bank The actual l imitations i mposed on this right
must be s o devised as to guard the community against the
various disorders which may arise from an imperfect standard
o f value o r medium o f payme n
t At the present stage how
ever we are hardly ready to consider in detail the di fferent
k inds o f lim itation s to which the right o f issuing legal tender
notes may be subject Be fore we can do s o we must deal
with the foreign exchanges a subject o f the utmost impor
tance in the theory o f credit and currency
,
C H A P TE R
N O TE TO
III
Th e
a an d l et th e c onsu m ers i n
increased to A
c o m e b e co me B
b, the con s u m e rs outl ay (h itherto eq ual to B )
a
B
an d th e c re d i t extingui s hed (hith e rto eq u al to A) A
If al l th e add iti on al cred it it were paid away th e c on s u mers
i n c om e would be B
a
Th e d i fferen ce between a and b i s ao
c oun ted fo r by the su m wh ich trad ers borro w but d o n o t pay a way
After a n i n te rva l
and which is there fore add ed to the ir b al an c es
Th e co n su mers
at
o f ti m e t the credit cre ated wi ll h ave b een A t
re ceipts will have b een B ! M Trad ers bal ances w ill have b een
b
rai sed fro m T to T a t t Th e co ns um ers o utl ay i s B
an d the ir balanc e s will have
i n ti m e r they wi l l have sp en t B !
been inc reas ed b y 5 ! l and will s tan d at C + (bt b t ) The
traders wi ll have rece ived B t
fro m th e c on s u m ers an d w i ll
'
a t
Th ei r
ss to the am o unt o f A l
have di scharged indebted n e
an d
will
of f
balan ces will have been further increased by
s tand at
N ext l et A be
'
T +
Th e
consu m ers
balanCes
'
bl
a re
C 4 t
m argin
as
who l e,
C
or
at
at
53
d
'
d
'
l,
b eing
th e
su m
of
54
an d
'
'
or
PS
5!
Trad e rs
'
'
B + b =
(P
[X
5 = pX
6
'
b =
(P
1) ) x
+
+
p)
(x
Trad e rs
55
is
h r o e only
t e ef r
an d
If
thi s
i s sm all , i f 6
is not
m uch
l ess than
'
if p
a t
f
a
F
R
t
o
D
hi
i
se
d
+
ra
+
=
T
s
i
s
R
M
D + F
B u t as the un spent margin incre as e s th e p orti on o f it h eld in th e
Suppose that it increas es
form of money will tend al s o to i n cre ase
at
a t
It and thei r
by h
Then th e banks liabilitie s are D
reserves o f cash are R It H e re I: is of course l ess than a t a t
es
up
o rted b
s
ll
r
r
serv
e
m
a
e
e
s
r
a
a
s
ther
ore
l
r
er
li
b
liti
a
i
e
y
and
ef
p
g
5,
C HAPTER IV
T H E FO R
E I G N E XCH A N G E S
of
T H E F O RE I G N E XC H AN GES
57
CURRENCY A N D CRED I T
58
TH E FO RE I GN EXC H AN GES
f
un avou ra bl e ;
favou rable
59
'
60
CURREN CY AN D CREDIT
'
whi ch
are read il
ru
trans
por tabl e
TH E
FO RE I GN EX CH ANGES
61
'
62
'
'
TH E FO RE I GN EX C H AN GES
63
foreign cred its is called the export specie point ; the limit
at which it becomes more protable to import gold than to sell
'
l.
CURREN CY A N D CREDIT
64
'
T H E FO RE I GN EXCH AN GES
65
th e
66
CURRENCY AN D C RED IT
T H E F O RE I GN E XC H AN G ES
67
'
'
'
C URR ENCY A N D CR ED IT
68
THE FO R EI GN EXCH AN G ES
69
'
CUR R EN CY AN D CR ED I T
7o
TH E
F O RE I GN
E XC HAN GE S
C H AP TER V
SYS T
EM S
N O TE I S S U E
OF
72
S YS T EMS O F N O T E I S S UE
73
CUR R EN C Y A ND CR ED I T
74
75
76
CURRE N C Y AN D C R ED I T
'
77
n
o
t
circulation does
arise The cash actually in people s
hands is already in the form o f paper ; the gold i s already
assembled in o n e central stock N othing is needed but the
suspen s ion o f the law to make the gold available as wel l as
the paper
Another system o f paper money which req uires no dis
creti on in its management is that o f an absolutely xed issue
p r ovi d ed that the amount xed i s distinc tly less than the
minimum a m ount o f legal tender currency eve r needed fo r
internal circul ation This proviso is very important fo r i f
the xed note issue i s ever in excess o f the amount o f legal
tender currency nee ded the limit becomes inoperative and
the currency re q uires a s much management as i f there were
Th e demand o f a community fo r currency
no limit at all
cannot be absol utely xed and i f the xed issue is below the
minimum demand the paper must always be supplemented
by some other form o f money the amount o f which will vary
according to the need fo r it So long as gold and paper cir
cul ate side by S ide subject to a legal tender law the paper
will pass at its no minal value The supply o f paper bei n g
ex hyp oth es z insu fcient to meet the whole demand fo r currency
debtors will be compelled som e times to pay in gold ; when
they do so they have no legal right to pay less than they
would pay in paper ; consequently gold and paper must cir
culate at par
I n time o f crisis the xed issue syst e m h as both a d va n
tages and disadvantages On the o n e hand people are a lready
used to paper mo ney and the means o f producing it are
already in operation If the xed issue i s to be exceeded
it can be done with smoothnes s/ and celerity On the other
is less than it
hand the actual s to
of
em
that
o
r
h
e
e
i
t
would be und r
.
78
CURRE NCY AN D CR ED IT
SY ST EM S O F N OTE ISSUE
79
CURREN CY A ND CRED IT
80
81
CURRENCY AN D CRED IT
82
'
83
'
e. ,
depo s i ts
o th er th an
thos e of th e
Gove nm e
r
n t.
84
'
'
S Y ST E M S
N O TE ISSUE
OF
85
all the gol d using coun tries managed their currencies on this
plan the periodical expansions o f credit which take place
would be greater than they a l read y are and the nancial crises
in which they so o ften end would be correspon d ingly more
severe
The xed proportion plan has been adopted in the United
States fo r regulating th e note issue o f the new Federal Reserve
Banks The cash reserves held by these banks against their
note issues are to be 40 per cent o f the amount o f notes out
standing and i f the reserves fall below this proportion the
banks have to pay a graduated tax on the deciency The
tax i s I per cent so long as the proportion does not fal l below
32 % per cent but a fter that point the tax is to be 1 } per cent
This i s an i n
o r more o n each 2 } per cent o f the deciency
geni ous attempt to substitute an automatic rule fo r discretion
but it is to be observed that a very wide discretion is none
the less reserved to the Federal Reserve Board in charging
interest o n the issues o f the Federal Reserve Banks as well as
in controlling credit generally The Federal Reserve Act i s
still to o recent and circumstances since it came into opera
tion have been to o exceptional fo r experience to have thrown
light o n its practical working
-
C H APTER VI
I N TE R NATIO NA L C U RR EN C Y M OVE M EN TS
56
IN TE R N AT IO N AL CURRENCY M OVEMENTS
87
88
CURRENCY A ND CRED I T
"
89
'
90
91
92
93
94
i s simp l y that prots are high and 4 per cent has become
unattractive The real troubles o f the investment market
come w hen the time of active trade stops and prots become
The gilt edged securities will then be rel ieved o f
l o w again
the embarr assing competition from which they have su ffered
though
even
they
may
not
recover
at
once
see Chapter I X )
(
but whatever relie f is given to the underwriters responsible fo r
those issues will be as nothing to the new di f culties o f those
who have taken charge o f speculative shares A s to what occurs
at the transition from o n e state to the other that will engage
our attention in Chapter VI I I H ere we are concerned with
the e ffect o f capital movements upon the relative progress o f
a credit expansion in di ffe rent countries F o r the present we
will leave aside o n e o f the most im portant classes o f capital
movements that i s to say war borrowings fo r war nance is
a subject which demands separate treatment So far as i n
vestment fo r the purpose o f economic developmen t ( whether
through Governments or through private enterprise) i s co n
cerned most o f the openings are to be found in what may be
'
95
CURREN CY A ND CR ED IT
96
"
'
. .
97
C HAPTER V I I
TH E
M E C H AN I S M
F O R E IG N E XC H AN G E
OF
98
T H E M EC H AN IS M O F FO R E I GN E X CH AN GE
99
tomer o f the bank an d the banker knows his a ffairs the money
may be lent to him by way o f an advance o r overdra ft fo r
whi ch he might perhaps fu rn ish some sort o f collateral security
But a loan o f this k ind is subject to the disadvantage from
the banker s standpoint that the cred itor cannot easily assign
his r ights in it to some o ne else Bankers like to hold as
l arge a portion as possible o f their assets in what is called
'
'
CURRENCY A ND CRE D IT
I OO
1
n
f
the bill by writing his name o the ace o f i t
accept
Otherwise there would be no evidence o n the document itsel f
that the purchaser had ever given the vendor authority to
order him to pay at all A bi l l i s a negotiable instrument
The original lender o f the money can assign his rights in it
to another person by merely writing o n it and signing a dirce
tion that the money be paid to this other person instead o f
'
Th e
i s draw n
acc ept o r
He
acceptances
101
support the bill When the bill is thus drawn not u pon
the purchaser himsel f but upon his banker it may be drawn
either by the vendor and made payable to the person ( pro
bably the vendor s banker) who is to lend the money o r by
the purchaser and made payable to the vendo r who can then
en d orse it in favour o f the lender The essence o f the tran s
action i n that case is that the purchaser i s given a credit by
his banker which may be drawn o n at the appropriate future
date and w hether he draws on this credit himsel f o r author
i ses the vendor to draw upon it is a mere detail
O f course
when a bill is trans ferred by endorsement the new holder does
n o t pay the o l d its full face value ( which he can only receive
at a future date) but only that val ue less interest fo r the
period sti ll to elapse be fore the maturity o f th e bill This
interest i s called discount and the bill when sold subject t o
di scount i s said to be d iscounted
When a bill is used for an international transaction being
d rawn in o ne country to be accepted and paid in another it
usually has to be discounted in the rst instance bef ore it is
accepted The drawer sell s it to his banker in h i s o wn
country who tr ansm its it to the country o f the drawee in order
that it m ay be accepted K nowing hi s customer s affairs the
banker may be w illing to give him credit fo r the value o f the
bill at once without waiting fo r news o f its acceptance A
bill represents a debt due from the d rawee p er sonal ly
Strictly
speaking therefore th e l iability might follow him wherever he
may be and i f at the maturity o f the bill h e happened to be
hunting big game in A frica the holder o f the bill ought to
come a fter him to demand payment In practice however, a
bill is drawn o n a b ank o r house o f busin ess with an o fce in
a denite place If a bill is drawn on a house with several
branches it is drawn o n the hea d ofce o r o n a speci ed
bran ch ; i t is n ot a l iability o f all the branches indi fferently
A nd even i f the place at which payment o f the bill may be
claimed is no t determined in this way the bill may be ex
to
1 02
TH E ME C H A N IS M O F F ORE I GN EXC H A N G E
1 03
1 04
assumed that banks are al ways solvent and bank cred its alway s
good The j usti cation fo r so considerable an omission is
that the theory o f credit cannot be adequately understood ex
cept by an analysis which distinguishes the effects which do
from those which d o not depend upon the quality o f credit
In the nance o f international trade the qual ity o f credi t i s
very important Traders prefer bills drawn o n institutions
which are no t m erely o f sound but o f unquestionable credit
Bills o n o bscure bankers can only be discounted i f a t all o n
less favourable terms Consequently in a country nancially
weak importers may pay as exporters are paid with bills
upon a foreign centre An importer who takes this course
will receive payment fo r the goods when sol d in his o wn
country while the bill will fall due in the foreign centre As
part o f his arrangement with the foreign banker or nancier
who accepts the bil l he must undertak e to rem it the funds
necessary to enable the latter to pay the bil l when it matures
He will probably have to make this remittance th rough an
exchange dealer who will undertake to provide the requisite
sum in the foreign centre in exchange fo r the equivalent at
the market rate o f exchange The exporter who receives
the b ill by way o f payment bei ng a merchant who wants to
hold not bills but merchandise wil l send it to the for eign
centre to be accepted and discounted I t m ay very commonly
happen that the foreign centre i s in the exporter s o wn
country i f it is not it is sure to be o ne o f the great nancial
centres o f the world fo r other wise it would no t have been
TH E IM EC H AN IS M O F FO RE IGN '
EXC H AN G E
function s t o
1 05
CU R RE N C Y A N D CRED I T
1 06
C H A PTE R VII I
A C O NTRAC TIO N O F C R E DI T
1 07
1 08
'
1 09
'
I IO
that extent those who deal in goods and securit ies must nd
their sales falling off and the result is that the e ff orts o f o ne
trader to pay o ff h i s debts may merely increase the debts o f
his neighbours
I t might be supposed that a high rate o f in terest would
A CONTRACT I O N OF CREDIT
I n
CURREN CY A ND CREDIT
1 12
'
CO NTRACTION O F CRED IT
1 13
'
CUR R EN CY A N D CRED IT
I I4
'
A CONTRACTI ON OF CREDI T
11
'
'
'
'
CURRENCY A N D CRE D I T
I 16
A CO NTRACT I ON
OP
CRED IT
1 17
1 18
th e foreign
A C O NT RA C T I ON O F CRED IT
of
s ee J ,
Keynes ,
"
nance.
9118 96 ii .
1 20
'
A C O NTR A CT I O N O F CRED IT
12 1
o
r
coin
token o f th is kind has been cal led a n ote printed
o n silver
an d p r ovi d ed the uctuations in the value o f silver
d o not bri n g its i n s tri ns i c value up to its nominal value it
beh aves in exactly the same way as a legal tender paper
currency The value o f th e Indian rupee i s kept within a
fraction at the ratio o f 1 5 rup ee s to
1 by means o f the Indian
1
o
t
G vernmen s exchange operations in London
A consider
able part o f the taxes collected by the Indian Govern ment in
India have to be rem itted to Londo n to pay interest on the
Indian debt pension charges and other l iabil ities due in
Engl and The Indi an Government e ff ects these remittances
by perio dically o ffering for sale in London bill s and telegraphic
trans fers o n India If it always sold as much as it could and
no more at the par o f exchange I s 4 d to the rupee the ex
change woul d tend to be permanently at that gu re If the
r upee began to d ep rec iate pe ople would be unwilling to o ffer
1 s 4 d fo r it and the Indian Government would sell none
I t wo uld pay its London liabilities from reserves which it keeps
i n Lond on fo r the purpose and it would retain the correspond
i ng ru pees in its vaults in India
If on the other hand the
rupee tended to appreciate there would be a great demand for
rupees at the x ed price o f I S 4d and the Indian Govern
ment would receive more money than it needed to meet its
liabilities in London I t would pass the surplus into its re
serve in London and would issue rupees f rom its reserves in
India to pay the bil ls and telegraphic trans fers sold in London
I f it h ad to coin fresh rupees it would pay fo r the silver from
its reserves in London but the p rot on the coinage o f the
rupee s w ould o f course remain in those reserves Thus the
i ssue o f rupees into circulation a nd their withdrawal would be
nicely regulated so as to prevent the exchange in London
ever vary ing from par
The actual manner o f proceeding
i s slightly more complicated than this since the Indian
Government d oes no t stop sell ing rupees unless their value
-
d
5
1 below par,
falls
32
-
no r
refer , of cours e, to
ro-
war
di ti ons,
con
1 22
CURR EN CY A N D C RED IT
unless their
val ue rises
above par
32
The margin
of
32
in
fall
below I s
3d
A CO N TRACTI O N O F CRED IT
1 23
on
cred
CURRENCY AN D CREDIT
1 24
12
are high and the rate o f interest rises in sympathy with prots
The expansion cul minates and ends with a further rise in the
rate o f i nterest to the point at which it just o ffsets the expecta
tion o f prot and thereupon there ensues a period o f c o n
tractin g credit and l ow interest And even a fter the bank
rese rves have been everywhere restored to the normal p ro
portion o f the banks liabilities interest will continue l o w fo r
a further period in order to induce merchants to resume the
business o f borrowing and buying The history o f the London
money market is full o f examples o f this alternation o f high
and l o w interest The periodicity o f expansions and co ntrac
tions o f credit has fo r long attracted the attention o f eco no m
1
i s ts
I n another work I have endeavoured to Sh ow how
this periodicity is the natural result o f the sl ow response of
people s cash balances o r in other words o f the cash portion
o f the unspent margin to credit movements
Credit is easily
induced to expand but its expansion is not immediately ac
compan ied by a proportionate increase in the earnings o f the
working classes o r in their power t o absorb cash Even when
earnings d o show a material increase this goes to a great
extent not in increased balances but in increased expenditure
In so fa r as the money paid out o n one pay day comes back
through the shops to the bank s by the next no additional
strain is put upon the banks cash reserves From the time
when earnings rst rise there begi ns a gradual accretion o f
people s cash balances which will continue until these balances
But even i f
are in d ue proportion to the increased earnings
there were no f u r t/zer increase in earnings this process would
take a considerable time So long as credit i s expanding
earning s are increasing When credit begins to contract
earnings are at the maximum and the cash portion o f the u n
spent margin is still short o f the level corresponding to this
maximu m The wage earners are in fact still absorbing more
money than they spend The rst impact o f the credit con
traction falls on prots wages cannot be immediately redu ced
nor wil l even employment slacken until pending contracts have
been worked through There there fo re intervenes a period
,
"
oo d an d B ad Trad e
CURRE NCY A N D CR ED IT
1 26
C HA FTER
IX
F I NAN C I A L C R I SES
1 27
1 28
indeed the e ff ect o f war on credit and currency is o f s uch spec ial
importance that it will require separate consideration at a later
stage 1 Against the folly or ignorance o f bankers and govern ~
ments and agai n st the stress o f war no gold reserv e however
great i s an adequate protection It i s easy to see h ow the
line o f least resistance will always lead to greater and greater
ination I f an ination o f credits once begins the co u se
In a country
q uen ce s will be felt in a withdrawal o f gold
with a paper currency dependent o n the supply o f gold as
much as in one with a gold currency this will produce what to
the banker and trader appears to be a shortage o f currency
They will clamour fo r more currency and in so far as they are
guided by their immediate interests will resist proposals fo r
raisin g the rate o f interest and restricting credits It might be
supposed that a rise in the rate o f interest would be protable
and attractive to the banker since his prots are proportional
to the rate o f interest which he charges to his customers In
practice however this is not so The rst step is to raise not
the market rate but the bank rate The mark e t rate only
follows the bank rate because the high bank rate obstructs
advances o f legal tender money from the central bank In the
rst instance there fore a h igh bank rate intensies the shortage
o f currency and increas e s the embarrassments o f the bankers
It is a poor consolation to the banker who sees his Cash
reserves dwindling that the corresponding contraction in h i s
business will necessitate an increase in the rate o f interest
which he charges to h i s customers H e cares more to increase
o r at any rate to maintain the extent o f his business than to
reap such additional prot as even a high rate o f interest will
give him fo r a short time on a reduced volume o f loans To
the trader the high rate o f interest presents itsel f in the rst
i nstance as an expense to be subtracted from his prots but
behind this initial loss looms the far more serious menace o f
a di fculty in borrowing which will affect not merely himself
but those to whom he hopes to sell A central b a
nk o r a
government will only be human i f before the protests o f the
busi ness world it shrinks from the paradoxica l course o f
.
S ee ch aps
xi i i
xvi .
I 29
1 3o
131
fall i n
CURRENCY A N D CRED IT
1 32
F I NA N C IAL CR IS ES
1 33
eff ect than this upon the supply o f credit If they are severe
en ough they may ruin the banks w hich have lent to the i n
solvent rms The failure o f an i mportant bank h as a most
violent e ff ect upon cred it operations The obligations o f
a solvent bank are from the point o f view o f its creditors
simply the eq uivalent o f so much money Let the ba nk
become insolvent and these obligations are as it were petried
They become de ferred claims to share in a fund o f p ro b le m ati
cal value I f there is a prospect o f the a ssets turning out
well other banks may grant cautious loans on the security o f
these claims but well within their face value B ut a great
part at any rate o f the purchasing power represented by the
de funct bank s liabil ities is annihilated
Again a bank knows i ts customers a ffairs and i f it fails
th ey cannot so readily obtain loans fro m other banks to whom
they are strangers There fore not only does the prospect o f
the loss o f at any rate a part o f the sums due to them from
their bankers weaken their nanci al position but they cannot
easily nd lenders willing to advance even su ch loans as their
nancial position still j usties The destroyed purchasing
power cannot be immediately repl aced and till it begins to
'
be replaced the con sumers outlay w ill be proportionately less
than be fore The count ry becomes a bad market to sell in
and prices fall But the traders and stock jobbers wh o carry
o n business with borrowed money
and who nd thei r bank
balanc es suddenly impounded and their borrowing power cur
tailed or suspended are driven to sell whatever wealth they
can realise H elpless in the agging home market they rush
to o ffer goods and securities in any foreign market where they
can nd purchasers And the foreign purchasers still free
fro m credit di fculties in their own countries are o f course
ready and eager to buy goods o r securities at l o w prices The
sudden heaping u p o f credits in foreign countries at the d i s
posal o f traders who are in urgent need o f ready money at
home will o f course immediately react upon the foreign ex
changes The exchanges will become ve ry favourable and
gold will ow in this inux o f gold will help to make up the
shortage o f purchasing power If there were no recuperative
.
"
I 34
CURRENCY A ND C REDIT
5
,
F I N A N C I A L C RI S ES
135
which the currency sy stems o f the world and the stock o f gold
canno t perm anently maintain them The drain o f gold o r o f
paper based on gold into circulation i s the signal fo r the i n
evitable contraction o f credit and deation o f values This
process o f dea tion threatens the solvency o f the weaker
tra d ers I n any country where the expansion has been exec s
sive and the contraction is proportionately severe a crisis may
break out
The distinguishing characteristic o f a crisis is the pressure
!
to sell caused by the peril o f bankruptcy
If a trader is i n ;
danger o f failing that is the result o f a fall in the value o f his
stock i n trade H e has been employing both his o wn capital
and the advances he can get from his banker to buy goods
in the expectation that he can sel l them as fast as he buys
them at a rising p rice Sales suddenly fall offa sign that
the period o f ex pa nding credit is at an end and that the banks
are initiating a period o f contraction The un fortunate trader
nds n o t merely that his goods cannot be turned into cash s o
quickly as he had hoped but that he cannot get so much cash
fo r those which he does sell and that the value o f the whole
o f the stocks on h i s hands h as to be written down to the new
level o f prices Failing to sell he has to renew loans from his
banker in order to carry the unsold stocks and he may have
to increase his indebtedness i n order to pay fo r new consign
ments o f goods ordered be fore the tide began to turn but
In such circumstances even i f the
only d el ivered a fterwards
excess o f his assets over his l iabilities does no t vanish al
together i t may well be that the margin is so narrow that he
cannot provide good enough securi ty to induce his banker to
grant the accommod a tion he needs In that case i f he is to
meet his engag ements he m us t sell But the curtailment o f
credit has already spoilt the home market and it is the failure
o f the home market that is the cause o f all his embarrassments
He is therefore driven to sell abroad i f he can But the
reme d i al ten d encies which would mitigate the severity o f
a purely commercial cri sis are absent when the situation is com
plicated by currency di f culties Foreign countries are them
selves short o f gol d o r at any rate cannot spare go l d consistently
.
I 36
F IN AN C IA L CR I S ES
r 37
if
C U RRENC Y A N D CRED I T
I 3S
F IN A N C I A L C R ISES
I 39
I 4O
F I N A NC IAL CR ISES
14 1
of 1 89 1
CURRENCY A N D CRED IT
x4 2
FI N A N C IAL CR ISES
more characteristic feature
m o d i t i es
of
1 43
CURRENC Y A N D CREDIT
r 44
FI N A NC IAL CR I SE S
of
14 5
foreign
nts
'
"
10
I 46
C U RR E NCY A N D CRED IT
F INANC IAL CR I S ES
1 47
as d ue to over s peculati on
I n po int o f fact however
there are examples o f periods o f furious spec ulation which led
to n o crisi s at all
The Kaf r boom o f the nineties ex
pended i tsel f without any crisis and several years o f sound
trade intervened be fore the comparatively insignicant crisis o f
1 90 1 in Ger m any u sh ered in the depressi on o f trade o f 1 9 02 5
The rubb er boom o f 1 9 1 0 came at a time when trade was re
covering from the great American crisis o f 1 9 07 ; there was
n o credit ination at the time
n o seri ous nancial crisis o c
curre d anywhere and the trade recovery continued unbroken
till 1 9 1 3
Speculation in fact may be induced either by the discovery
o f some new open ing fo r investment or by the general rise o f
co m modity values and increase o f investment demand which
occur at a time o f trade expansion In the former ca se over
speculation causes nothing worse than the embarrassment o f
th e spe culators ; but in the l atter over speculation i s o n e
among several sy mptoms o f an unsound cred it position
Speculatio n i n commodities though usually l ess co n s p i cu
is neverthele ss important
o u s than speculation in securitie s
But the l ine bet ween prudent and imprudent trading with bor
rowed money is here more diffi cult to draw Though com
m o d i t i es may occasional ly exhibit sensational variations o f
prices their values d o no t depe nd like the values o f shares o n
conj ec tu ral calculations as to the distant future and they are
,
'
1 88 4
cal l
'
10
CU R REN CY A ND C RED I T
4S
it
I 49
CURRENCY AN D CRED IT
50
'
C H A PTER X
FI NAN C I A L C R I SES
( Conti nued )
35 1
52
This division into the sh eep and the goats may be impossible
What is to be the test o f solvency ? Are assets to be
F IN AN C IAL CR ISES
53
fo r
'
CURRENCY A N D CRED IT
54
F IN A NC IAL CR I SE S
55
'
I 56
CURRENCY A N D CRED IT
57
'
CURREN CY AN D C RED IT
58
or
'
F IN A N C IAL C R I SES
59
g
-
e rati o n s
aa
h as
0f
m p er
money
I t is there fore the only means o f
increasing the supply o f purchasing power and so of reduci ng
ag ain the articially raised value o f the monetary unit and
other countrie s ought in the interests o f the commercial world
to send whatever gold they can to the crisis centre
When
the storm is over and traders have either weathered it o r
foundered le nding can recommence o n the normal footing the
supply o f c redit money will be reconstituted and the greater
part o f the go l d w i l l soon be sent abroad again The demand
fo r gol d in a crisis is sometimes articially intensied by re
strictions o n the issue o f paper Even where there is no limit
o n the amount o f paper money that may be legally issued o r
where the legal limit is temporarily removed paper money
may still be an inadequate medium o f exchange m erely be
cause the lowest denominations o f notes are to o high fo r ordin
ary use especially fo r the payment o f wage s This has o ften
been an important factor in English crises The drain o f
guine as which led to the suspension o f specie payments in
was partly due to the need o f coin fo r internal cir
1 7 97
culation there being no notes below 5 At the time o f
the crisis o f 1 8 2 5 Bank o f England notes below that limit had
been again withdrawn though they were n o t prohibited by
law In the midst o f the crisis a forgotten chest o f unissued
one pound notes was discovered and they were sent o ut to
the provinces where they contributed materi ally to relieve the
'
'
CURRENCY A ND CREDIT
160
'
F I N A N C IAL CR ISES
16 1
Duri n g th e
ed
B k
II
CURREN CY A ND CR ED IT
1 62
CHAPTER X I
M O NEY
AN D C
OI NAG E
1 63
1 64
CURREN CY A N D C RED I T
M ON EY AN D C O IN A GE
i ng
16 5
. .
CU RRENCY A N D C RE DIT
1 66
th e
"
'
'
M O N E Y A N D CO INAGE
167
CURREN C Y AN D CR ED IT
1 68
very gradually
In order to equalise supply and demand
the supply h as to be supplemented from the reserves o f the
banks o r else replaced in part by an increase in the paper
circulation
It i s sometimes maintained n o t merely that gold i s a co m
In virtue o f the
m o d i ty but that m oney is a commodity
q uantity theory the greater the supply o f money the less will
be i ts val ue in other commod ities ; what i s this it i s asked
but the l aw o f supply and de m and ? The money in ci rculation
represents in the aggregate the amount o f purchasing power
that people choose to keep in hand in the form o f legal tender
They keep it in this form fo r certain denite purposes ; that is
to s ay o n account o f its utility The rich m an keeps his
pocket money the poor man keeps his stock o f cash the shop
keeper keeps h i s till money the banker keeps h i s reserves
Each is sacricing the advantages o f spending o r investing this
purchasing power fo r the convenience o f having ready money
in hand This demand fo r ready money i s analogous to the
demand fo r a com modity ; cash in hand i s part o f the capital
resources o f the individual
But it i s a mistake to push this analo gy too far I ndeed
when applied to paper money it is palpably no more than an
analogy Even though p aper money behaves like a commodity
in follo w ing the law o f supply and deman d it ob viously di ffers
from other commodities in having no appreciable cost o f pro
duction It resembles other entitling documents rather than
commodities A theatre ticket derives its value from the
right which it Con fers to a seat in the theatre ; a legal tender
note derives i ts value from the right which it con fers o f dis
c h a rg ng a debt
J ust as the value o f theatre tickets i s de
rived from the val ue o f theatrical performances s o the value
o f paper mo ney i s derived from the value o f debt s
We have
seen how the value o f the monetary unit i s determined by the
quantity o f credits ( debts) put into circulation by the banks
and how the deman d fo r legal tender money arises from the
unsuitability o f bank credits as a medium o f payment in certain
classes o f transactions The interchangeability o f bank credits
and legal tender money at the option o f the bank s creditors
,
M O NEY AN D CO I N A GE
169
m o d i ty
P
H
C U RR ENCY AN D CRED IT
17 0
been consumed
But on the other hand instead o f comi ng
to an end it may go o n circulating The dealer who receives
it may pay it away in making a further purchase Whe n
money or credit goes o n circulating from hand to hand is it
"
M O N EY A N D CO IN AGE
17 1
of
"
-r
17 2
fewer
,
.
M ON EY AN D C O IN AGE
17
from wear
cl ipping inaccurate manu facture o r deliberate
debasement below the prescribed standard o f weigh t and ne
ness In that case it i s protable to m elt o r export those
coins the metallic value o f which is greater than their current
val ue in terms o f the monetary unit but n o t those whose
metallic value i s less
This is Gresham s law The worse mon ey drives out the
better It takes e ffect only when there i s a discrepancy
between the value o f the coin as a commodity and i ts val ue as
a ticket o r token Its value as a token is xed by the quantity
With changes in the state o f trade this value may
theory
change If the co in is perfect then when the monetary unit
tend s to become depreciated the coin begins to be melted and
exported and this process cannot stop until either the value
o f the monetary u nit is restored ( by a contraction o f credit o r
any oth er means) or the entir e stock o f currency is exhausted
,
S ee b elo w ,
ch ap xx i
.
p 37 2
.
C URRENC Y A N D CRED IT
174
MONEY AND CO I NA GE
17
17
the seventeenth century the gold coin issued from the m int
was the guinea which was intended to be worth twenty
shillings o f silver
Thi s represented an under valuation o f
gold as compared with its market pri ce in England and abroad
and according to Gresham s law the guinea ought to have
been driven o u t o f circulation But at that period the grow
ing volume o f trade made so bulky a med i um o f payment as
silver intolerably inconvenient The merchants and gold
smiths or bankers found gold indispensable fo r large payments
Instead o f the twenty shilling guinea being driven out o f
circulation its nominal val ue became a dead letter and it
regularly passed fo r 2 1 5 6 d
This customary over valuation o f a coin which happens to
be convenient fo r commerce notwithstanding that legally it i s
under valued is n o t the only possible exception to Gresham s
law Money whether coin o r paper which i s legal tender
may cease to pass at its face value because in practice debtors
d o no t wish or d o not dare t o take advantage o f their legal
right to pay with it The French assignats which were still
the sole medium o f payment when they circulated at from o ne
fth to t wo fth s o f their nominal metall ic value in 1 7 94 fell
It can hardly be supposed
t o one three hundredth in 1 7 9 6
that in the latter year a debtor who valued h i s credit or hi s
reputation fo r honesty would have tendered a bundle o f notes
to the value in the market o f ten sous in payment o f a debt o f
1
1 5 0 livres
Under the rgime o f the si lver standard there w as never
any di fculty about the supply o f subsidiary coinage ; the
small silver coins represented as small a unit o f value as was
ordinarily required fo r anythi ng above the trii ng transactions
fo r which copper tokens were employed
Gol d co ins however
are n o t usually issued below about fty grains ( the weight for
example o f a ten franc piece) and coi ns o f twenty ve grains
are about as small as can be conveniently handled It w as
found that i f gold and silver co ins circulated concurrently and
i f the silver became under val ued inconvenience was caused
,
'
d ebts
L egal reco gni ti on of thi s s i tuati on Was gi ven by the Acts scali ng dow n the
contracted
(s ee p
MO N EY A ND C O INA GE
17
val ue.
I2
17
C U R RENCY AN D C R ED IT
MO N EY A N D C O I N A GE
17 9
'
: 2
CURRENCY AN D CRED IT
1 80
'
M ON E Y AND CO I N AG E
18 1
'
CUR RENCY A N D CR ED IT
I 82
M ON EY AND C O INA GE
from d ay to d ay
1 83
If
.
-
'
1 84
C H APTE R X I I
TH E T H E O RY
O F B AN KI N G
$8
1 86
CURRENCY AN D CRED IT
'
TH E T H EORY
m ents
of
th e
O F BAN K IN G
1 87
'
'
1 88
large scale and conseq uently the amount o f goods i n the hands
o f any o n e o f these i s subject to a successio n o f discontinuities
being large immediately be fore a sale o r after a purchase and
small immediatel y be fore a purchase or after a sale I f there
were no tem porary borrowing every man s permanent capital
would have to be enough to pay fo r the maximum quantity o f
goods that he at any time has in h i s possession and wh e nei rer
the goods o n hand fell short o f the maximum he would have
a b a lance o f idle money equivalent to the di fference From
the point o f view o f the individual trader the advantage o f
temporary bo rrowing is that i t enables him to escape the
necessity o f maintaining at ti mes a large balan ce o f idle money
which i s earning no interest In fact it enables him to eco no
mise balances It is immaterial wh ether the borrowing is
from a banker or nancier or from the trader s customers
It
might be done quite e ffectually eno ugh by means o f bills
drawn by sellers o n buyers or by mere book debts between
them with periodical settlement Whatever the practice may
be the purpose i s to economise balances And i f metallic money
i s used economy in balances means economy in the use o f
metal and a real saving o f wealth If however legal tender
paper i s in any case used ( and this as we have seen is some
thing distinct from bank cred its e ven i f the latter are re pre
sented by bank notes) there is no saving o f wealth to the
community Economy in balances means dim inished issues
o f paper money and the trader s saving is e ffected at the ex
pense o f the prots o f issue which would accrue to the issuing
authority
The advantages o f temporary borrowing however are not
limited to the saving o f loss o f interest on idle money Apart
from th e p o w e r o f borrowing a merchant would be l imited in
all h i s enterprises to the permanent capital o f h i s business
Even i f this permanent capital were enough to cover all ordin
ary uctuations in his stocks it would still be ins u ffi cient to
enable him to take advanta ge o f exceptional opportunities fo r
large purchases which his special skill and knowledge o f his
trade might disclose to him Thus temporary borrowing i n
into
tro duce s an al most necessary elem ent of le l as ti ci
the
ty
,
T H E T H E O RY O F BAN K I NG
1 89
1 90
T H E TH EORY OF BAN K I N G
19 1
com pan i es collectors o f work ing class rents etc Apart from
this the banks cr eate purcha sing po wer in the process o f grant
ing credits It rests with th em t o increase o r di m inish the
u nspent mar in by accele rating o r retardin
g
g this p roces s o f
gran ting cred its And as they i n crease or diminish the nu
s p en t margin they increase o r dimini s h the suppl
y o f capital
fo r balance sh eet purposes
A s it i s for ci rcu l a ti ng capital
that bank advances are chiey used this increase o r decrease
in the capital items o n the debit side o f the traders balance
sheets is accompanie d by a corresponding increase or decreas e
in the stock in trad e o r goods in course o f ma nu facture o n the
credit side H ence the e ffects u pon productio n and all the
other consequences which we have followed o ut incl uding th e
l
o
n
m
capital and it is important to avoid the co n
y called
fusion which thi s double u s e o f the term may cause
When
the re is said t o be an abundance or s carcity o f capital what i s
u sually meant is no t that there i s an abundance or scarcity o f
wealth adapted for use in production but that the banks are
wil ling o r unwi lling to lend At the time when the scarc i ty
o f capital is most acute that is to say in a crisis there is an
emba rr as si ng plenty o f com mod ities because merchants are
selling them at a sacri ce fo r want o f the credit on which they
rel y for holding them
CURREN C Y A ND C REDIT
192
TH E TH EORY
O F BAN K I N G
193
'
'
C UR RE NCY AN D CRED IT
94
TH E T H E O RY o r B A N K IN G
19 5
the
investing public o r from the creation o f bank credit s
Consequently the extent to which the aggregate o f bank credits
can be reduced by the sale o f such securities is limited by the
supply o f savings available fo r i nvestment Advances on
investment securities even though they appear to be a very
liquid asset are someti mes found in an emergen cy to be
frozen up
The existence o f any large class o f traders
whether they be ban k ers underwriters nance com panies or
any others with long period assets and short pe riod debts
is
a l way s a source o f danger This is the real ground o f the
prejudice against what are called nance bills o r ao
13
CURR ENCY A N D CR E D I T
1 96
bank has its client ele peo ple wh o have chose n fo r o ne reason
Fo r the most part the
o r another to give it their custom
borrowers from it will be included among its d epositors If
a ban k i s a little too free with its loans its customers will on
balance pay away greater sums to the customers o f other
banks than they will receive It will nd day by day when
it sett les accounts at the clearing house that it has to meet an
adverse balance by paying away a part o f its cash reserve If
it is to kee p a cash reserve in due proportion to its liabilities
it must restrict its advances o r perhaps trans form some o f its
other assets into cash fo r example by rediscounting bills
Whatever measures it may choose to adopt the e ffect is that
it must n o longer outstrip its competitors in granting loans
And o n the other hand an unduly cautious bank will nd a
favourable balance d u e to it at the clearing house ; its cash
reserve will grow at the expense o f its other assets and its
prots will suffer through its interest earning assets being too
small in proportion to the total Thu s there i s a tendency
for all the banks to keep pace in the granting o f credits ; each
can only extend its business by nding new customers and
the loans and a d vances that it can grant a mong a given circle
o f customers are practically l imited
A loss o f cash m ay occur either through th e grant o f
excessive advances or through a loss o f con d ence in the bank
I n the latter case the remedy
o n the part o f its customers
i s fo r the bank to borrow from its fellow ba nk s S o long as
the loss o f condence i s not deserved so long as it can p resent
a balance sheet that is demonstrably solvent it can do this
The banking community will always be anxious to help o ne
o f their members
provided he be really solvent for any
banking failure wil l cause a shortage o f the m eans o f payment
and w i ll put them in di f culties But it i s o n e thing to be
solvent and quite another t o be able to give conclusive
evidence o f solvency The solvency o f a banker depends in
the last resort o n the solvency o f those o f his customers to
whom he has lent O f some o f these he alone knows the
affairs Many a bank has come to grie f and has yet paid 2 05
in the poun d when woun d up with a han d some balance over
,
TH E T H EO R Y
O F B A N KIN G
fo r
197
CUR RE N CY AN D CREDIT
198
THE ( TH EOR Y OF BA N KI N G
1 99
e
and there w re three central reserve cities ( New York
Chicago and S t Louis) The National Banks in the reserve
cities held deposits from the N ational B anks in the smaller
places round them and these deposits were counted as part o f
the statutory reserves o f the l atter The National Banks o f
the central reserve cities likewise held deposits from those in
the rese rve cities This di ffered from the Engl ish system in
that there was no centralisation o f the deposits which were
thus counted as cash reserves in a single institution The
Federal Reserve Act has however made a furth er approach
towards the Engl ish system in that though even yet there i s
n o t a singl e central bank fo r the whole o f the United States ,
the country i s divided up into districts and there is only one
Federal Reserve Bank fo r each district Moreover the Federal
Reserve Board introduces some unity o f control into the
Federal Reserve Banks o f all the di fferent districts If cir
cu m s tances demanded a general contraction o f credit it would
be possible to m ove the Federal Reserve Bank s to make
a simultaneous advance in the rate o f interest The United
States system still di ff ers in many important respects from the
English Every national bank i s required by statute to main
tai n a reserve equal to a certain proportion o f its l iabilities
1
and th is reserve must be deposited in the Federal Reserve Bank
If the reserve fal ls short it will be replenished by rediscounting
bills with the Federal Reserve Bank National Banks are p ro
hi bi ted from having branches s o that there are tho usands o f
independent banks some very large and others very small
On the continent o f Europe the prevalent practice is to
hold the c as h reserves in legal tender paper issued by a central
bank and to replenish them when necessary by rediscounting
bi ll s with the central bank
Under al l these systems the e ffect is that in order that the
1 9 1 3,
Bank
CURRENCY AN D CR EDIT
2 00
T H E T H EO RY O F B A N KI N G
20 1
is
to exercise their
options in other words i f the market value
1
o f gold tends t o rise above its coinage price
he may be called
upon to nd more gold than he possesses or can lay his hands
on
At such a time he cannot get it from his fellow speculators
because they are in the same di fculties as he Neither he
nor they are necessarily to blame ; the gold market may be
inuenced by conditions abroad over which they have no con
trol an d o f which they have no direct knowledge It seems
therefo re that o n this theory the risk s o f the speculator are
inseparable fro m b anking unless the practice o f the o l d banks
o f H amburg and A mster d am be adopted and the whole o f the
deposits be covered by bullion o r specie
But in reality this i s no t a tenable theory o f banking at
'
all I f the banker s obligations are payable in gold that is
because a l l debts are payable in gold If the law makes them
payable in go ld the law can at any time make them payable
in something el se I t is vain to say that it m ust not d o so ;
in practice it frequently does There i s much to be said fo r
the view that al l currency systems oug lzt to be based o n a
metallic standard and that once the standard is chosen it
ought to be adhered to at all costs But however rmly th e
[sta ndard may be entrenched in the law the law always ca n be
al tere d o r even broken The power o f issuing paper money
al w ay s ex i sts in the backgro und even i f it be expressly fo r
f o f this po wer
bid
n
by
law
The
State
cannot
d
ivest
itsel
d
e
,
o r o f the responsibility attached to it
When in the throes o f a crisis all the banks are faced with
.
'
gol d fr o m the b an er at
n
o
f
t
h
a
n
r
b
i
o
e
e
s de bt to h i m ,
l
n
c
e
l
a
t
th e co i n age pri ce , pay i n g fo r i t b y a ca
whi ch l i e al l d ebts i s com pu te d i n th e l egal m o ney of accou nt
l
Th e
k
.
CURR ENC Y A N D CR ED I T
2 02
O r , theore ti call y
be l i m i ted by
at any r ate ,
wr i tten
th e
co n s ti tu ti on.
pow er
o f th e
S tat e
ov er curre ncy
m i gh t
T H E T H EO RY O F B A N K I N G
2 03
CURREN CY AN D C RE D IT
2 04
'
'
T H E T H EORY OF BA N K I NG
20 5
the
C H A P TER
W AR
X I II
I N AN C E
2 06
WAR F I NANC E
whel mi n g cause
s uf c 1e n tl
y grave
2 07
by
ei th er
fo rei g n
or
do mesti c w ar
CURRENCY A ND CRED IT
20 8
W A R F I NANC E
2 09
'
I4
2 10
'
WAR FI N ANCE
21
14
212
WAR FI NAN C E
213
CURRENCY A N D C RED IT
2 14
W AR F INANC E
21
2 16
W A R FI NANCE
217
C H APTER X IV
W AR I N F L A T I O N
'
'
21
W A R I N F LAT IO N
T h is
ed
n
can be met by the creat i on o f a bank e r s oblig ation
The banker will assume such an obli gat ion in return for a
suitable a sset It need no t be by way o f a te mporary loan
he may take long term war loan stock since he holds a certain
amount o f investments among his assets and at a pinch he
can add to this holding But the credits which bankers are
prepared to grant are lim ited by the necessity o f holding an
adequ ate reserve o f legal tender money If add itional credits
are created prices wil l tend to rise and in particular the prices
o f foreign currencies ; the foreign exchanges will become um
favourable and gold will be exported while more money will
be need ed fo r i nternal circulation
In time o f peace the
remedy fo r both tendencies would be found in a high rate o f
interest but we have supp osed that all that is practicable in
the direction o f a contraction o f credit has already been done
The indispensable conditi on o f further assistance from the
b ankers to the Government is that they should be secured
against the consequences o f thi s drain o f money Thi s can
only be effected by a suspension rst o f the limits placed upon
the note issu e in relation to the gold reserve and then i f need
be of the convertibility o f the notes into gold
H ere then we see h o w a Government at war may be co m
pel l ed to supersede the most w isely framed currency system
The fear o f this catastrophe is perhaps the chie f motive which
leads Governments to accumulate vast reserves o f gol d in time
It was a fter the Agadir crisis o f 1 9 1 1 t hat the
o f peace
German Government deliberately set o ut through the i ns tru
mentality o f the Reichsbank to make a large increase in the
country s holding o f gold Fran ce responded b y making
a large increase in the already very great reserve o f the Bank
Both countries were certainly actuated mainly
o f Fr ance
The greater the gold reserve the longer
by a fear o f war
the credit system can stand the strain o f nancing the
Government without suspending specie payments o r i f
specie payments are formally suspended but gold continues
to be exported without lettin g the paper currency fall to a
disco unt
o
h
d
t
et
o
s
f
rantin
cr
it
e Gove rnm en t
o
s
t
e
d
h
e
h
m
T
g
g
e
2 20
W AR
I N F LA T I ON
22 ,
'
222
WAR I N F LAT I O N
2 23
'
C URRE N CY A N D CRED IT
2 24
WAR I N FLATI O N
22 5
CURRENCY A N D CREDIT
2 26
'
W AR I N FL AT ION
227
not appear
The problem o f nancing imports is then
completely solved Whether the sol uti on be to borrow more
abroad o r to produce more o r consume less at home solved
it is It is when the Government raises credits which re
present nothing but a cross entry in its book s o f account with
its own subjects that ination begins As soon as gold pay
ments are suspended and th e creation o f redundant credits
proceeds without li mit th e prices o f c o mmodities begin to rise
indenitely The consumers income in any week is d rawn
as we have seen partly from the credits granted to the
Govern ment partly from the ordinary trade credits
The
consumers income proceeding from the latter source corre
spond s to the consumption o f n o n warlike commodities ; that
proceeding from the former source corresponds to the war
expenditure o f the Government An increase in war e x p end i
ture increases the consumers income and i f the consumers
devote their increa sed purch asing power to their own co ns ump
tion this means that an increased money demand is applied to
a limited output o f com modities If the values were still
based o n gold a rise o f prices would attract increased imports ;
now however it only makes the exchanges more un favourable
The whole increase in the consumers outlay there fore exhausts
itsel f in raising prices As prices rise o r in other words as
the value o f the monetary unit falls both branches o f the
consume rs income that derived from Government credits and
that d erive d from trade credits rise in proportion for a greater
quantity o f credit is needed to nance a given output o f com
o f course the unspen t
warlike
or
non
warlike
And
t
i
o
d
i
es
m
balances also tend to rise ; that i s to say a part o f th e credit
mains unexpe nded
pai d out re
The mere fact that the bankers who grant credits have
suf cien t assets to cove r them p erhaps several times over
It is only
d oes no t prev en t th e cred its fro m be ing redundant
,
15
CURRENCY A N D C RED IT
22 8
WAR
the
I N FL AT IO N
229
S
B k
tl an ti c but
t at es w as n o t s en t across the
ni ted
Th e go l d sen t from th e
n gl a nd at O tt ai va , w h ence i t was
an o f
was d epo s i ted to th e cred i t o f th e
ni ted
tates
sent bac wh en th e exch an g e tur ned i n favour o f the
1
2 3o
'
WAR I N FLAT I O N
23,
and
CU RRENC Y A N D CRED IT
2 32
C H APTE R X V
TH E
ASS IG NATS
233
of th e co untry .
2 34
f
o
o
r
series
notes
as signats of 1 000 livres each bearing
interest at 5 per cent to be accepted from purchasers in pay
ment fo r the bi ens na ti ona ux These notes were part of the
,
i n 1 8 03 ,
s o th at
25
l i vres
TH E
A SSI GNATS
235
C URR EN CY AN D CR EDI T
2 36
Th e
S ch
e d ul e
to th e L aw of 5
th e av erage val ue o f t oo
i
C ourto s
H i stoi
re
de l a
l i vr es
es s i d or ,
as s i gn at s
Banque d e F
in
An V ,
s p eci e
ran ce , etc.
for
( a3 rd J une
e ach
m on th , i s
gi vi ng
quoted i n
T H E A SS IGN AT S
2 37
'
other side I t seems more probable that the fall in the summer
was overdone I t w as a speculative movement which the
economic as d istinguished from the political conditions did
not j usti fy The year 1 7 9 2 w a s o n e o f great credit expansion
of which the trade activity in England was clear evidence and
the consequent fal l in the val ue o f gold o r rise in the prices o f
commodities would be reected in a rise
a
.
2 38
TH E A S S I GN A TS
2 39
'
CU RR E NC Y AND CRED IT
2 40
"
ASS I GNAT S
TH E
24 ,
S o far
Aul ard
Thi s w or ,
s ta te o f p ubl i c o pi ni on ,
Pa r i s
91
co n
etc ,
p oli ce o n th e
toge th er wi th extracts fr o m t he n ew s pap ers , pr ovi d es i n val uabl e m ateri al for
s tu dyi n g th e s ucces s i ve p h as es o f th e as s i gnats
9
ul ard , i , 1 3 9 an d 1 5 5
tai ni ng th e d ai l y
r ep or ts o f
th e
I6
CURREN CY A N D C R E D I T
242
.,
A SS I GN A TS
THE
24 3
uthoris
ng
the
syste
The same law
o
f
e
e
dul es d ltyp otlzequ e
m
i
a
.
16
CURRENCY AN D C RED IT
2 44
precious metals
s oi t en ba r r e en [i ng ot on
s oi t m on nay es
i
r
again records that the law which declared
1 7 9 6 the M on teu
gold and silver merchandise w as repealed
It is possible that
the law o f the 4 th June which recognised no other metallic
money than that coined by the Republic was interpreted as
TH E ASS IG N ATS
24 5
b een reg arded as the security fo r the assignats All that was
needed to rehabilitate them was to make them convertible
.
Stourm,
Fi na ces (18
n
l anci en Regi me e t de la
"
chap. Xxx
2 46
CURREN C Y A ND CRED IT
Aul ard
r st
ul
y,
7 95 ,
2 0th
June,
17
95
TH E
ASS IGNATS
247
'
.,
CUR REN CY AN D C R E D IT
2 48
For the seri ous effect of this on En gl i sh currency. see n ext chapter p
,
262
TH E
A S S I G N A TS
2 49
mtor i a ux
were to entitle the bearer to
( 1 6 th March 1 7 9
obtain land on d em a nd at the xed val uation o f twenty two
years purchase o f the annual value o f 1 7 9 0 ( o r eighteen years
purchase fo r buildings ) Though there are plenty o f o bj ec
tion s to such a currency system it may be plausibly argued
that so long as the supply o f lands remained unexhausted
depreciation would have been prevented But it was never
g i ven a fair trial Th e Com m ittee o f the lower Chamber ( the
Council o f Five H undred ) introduced an amendment m aking
assignats convertible into m a nda ts ter ri tor i a ux at one thi rtieth
o f their nominal value and raising the amount o f the mandats
from 6 00 to 2 40 0 m ill io ns to provide fo r the exchange ( with
an ample margin I) If o ne hundredth had been to o high a
valuation o f the assignat one thirtieth w as impossible The
l oui s fell it is true from 7 000 to 5 3 00 in o n e day and to
4 800 in one d ay more b ut it soon reacted to about 6 000
If it was to be valued in mandats at 7 2 0 there would merely
be a repetition o f the asco o f June 1 7 9 5 when the Convem
tion unable to stand the sale o f the bi ens na ti ona ux at two o r
three years purchase had annul led the sales retrospectively
To add to the d istrust the new currency when it came out
consisted no t o f mandats but o f p r omes s es d e m a nd a ts
Rescriptions o r Government
( authorised 1 9 th March)
promises to pay cash were already in circulatio n at an
enormous discount and pro mise s to pay mandats could no t
be expected to fare better Week a fter week month a fter
month people wondered when the mandat s proper were com
ing The p r omess es were given forced currency and could be
used to pay th e rst deposit fo r the purchase o f land but
apparently the Government could not summon up courage to
assume the l iability to pay land o n demand Meanwhile the
t the be innin o f
uot
ations of the manda ts fell and fel l
A
g
g
q
,
'
CURR EN CY AN D CRED IT
250
April they were worth no more than 2 0 per cent at the end
o f April only 1 2 at the end o f May they fell to 5 recovered
Though
to 1 0 in June and fell away in J uly even below 5
they were given forced currency and gol d and silver were
'
T H E A SS I GNATS
25 1
52
17
97
rentes received two thirds o f their capital in bans aes a eux ti ers
and interest on the remaining third in oons d a r
r er a es
req uisitions fo r the army were paid fo r in 6074: de
g
r e u i si ti ons
All these were obligations to pay in cash, but
q
obl igations with n o denite date o f maturity
Sometimes by
corrupt means the holders could get them paid on grounds o f
S ometimes they had to wait
urgency
Like the as
s i gn ats and mandats these instruments could be used in pay
ment fo r the bi ens na ti ona ux L ike them they depreciated
( though not quite to the same extent) But there was one
vital di fference ; they were n o t legal tender Contracts were
.
Stour rn, i i
.,
p 3
.
I bi d
ii
p 3 8 4,
.
TH E
A S S I GNAT S
253
o f the assignats
They were su pposed to be based on the
publ ic lands but were n o t in fact convertible into land or
anything else o f value There w as no denite relation be
tween the total value o f the publi c lands and the total amount
o f the circulating medium which the French people needed
In real ity the sale o f a capital asset l ike land is as much limited
C URRENCY A N D C R E D I T
2 54
a burd en o f guilt The Jacobin lead ers probably did not like
C H A PTE R XV I
TH E B AN K RE S T RI C T I O N O F
I 7 97
z5
C U RR E N C Y A N D C R E D IT
2 56
TH E
B A N K R E S T R ICTI O N O F
1 7 97
25
'
17
C U RR E N C Y AN D C R E D I T
2 58
quarter it h a d fa llen to 3 3 :
and in the third it w as no
more t ha n 3 2
I n O c tober the Lisbon exch a nge of whi ch
the p ar w as 6 7 % d to the milrei s rose to
representing
nearly a s gre at a depre c i ation of sterling as in H a mburg
A t l a st in self defence the D i re ctors of the B a nk re c ogni s
ing th at the needs of the Go v ernment must remain p aramount
dec ided th at they must restrict trade dis c ounts and on
3 s t D ecember I 7 9 5 they adopted a re s olution limiting the
total a mount of bill s to be discounted eac h d ay for their
customers other th a n the Gov ernment If on any day the
bills presented for di s count in the a ggreg ate exceeded the
limit laid do w n a proportion of the bills presented by each
applicant w ere to be retu rned on h i s hands A part from the
ad v ances to the Gov ernment this Procru s tean reduction of
discounts gave the Bank c omplete control ov er c redit and at
the s ame time the ad va n ce s to the Gov ernment ( of w hich the
obnoxious a dv a nces on Treas ury bill s in reality formed quite
a moderate proportion) were themselves s teadily reduced
H aving exceeded 6 I
in D ecember 1 7 9 5 they were
reduced to less th an
in S eptember I 7 9 6 But it
was not ti l l O ctober 1 7 9 6 that the foreign ex changes w ere
restored and e v en then the B a nk w as not reliev ed from the
drain of gold A t last in Febru a ry 1 7 9 7 the signs of a crisis
appeared A n invasion scare precipitated it and the gold
stock of the Bank a lready seriously depleted by the strain of
1
t
the preceding w o ye ar s began to melt a w ay The Govern
ment c ame to the con c lu s ion that the Bank c ould not stand
the s tra in and they obtained an A ct of Parliament s topping
the payment of its notes i n cash
It might perhaps be thought that this crisi s bears its ex
pl anation on its face D id not the Ba nk Di rectors go to the
root of the matter when they pressed Pitt a ga in and again to
keep down h i s demands for temporary ad v a nc es ? N o doubt
they w ere right i n atta ching so much importan ce to this but
a glance at the a ctual variatio ns which occ urred in these ad
vances w ill show that the explanation of the c risis is not to be
1 I
t h ad b een 6 % m i ll i ons i n A u gus t I 7 9 4
2
} mi ll i ons i n Decem ber I 7 95 ;
an d fe l l t o
} m i ll i ons o asth Febru a y 1 7 9 7
,
14
TH E
found
BA N K R E STR IC T IO N O F
17
97
2 59
C U RR E N C Y A ND C R E D I T
26 o
by l aw to be recei ved
I n so far as l oans w ere raised from
people wh o could not pay for them without borrowing there
would of c ourse be a tendency to wards unsound conditions
But i f the s ubscribers succeeded in obtaining credits abroad
a s S ir F Baring suggested the e ffect on th e exchanges would
be f a vou ra bl e at any rate s o lon g as the fore ign credits were
not called in A nd in any c ase the disturbance of the ex
changes occurred long before the war loan o f 1 7 9 6 was
issued
The c riti cs of the Bank blamed the D irectors for restricting
discounts The Bank restricted discounts in order to keep
down its note issue S ome of the witnesses before the S ecret
Committee of the House of Lords appointed i mmediately
after the crisis argued that the demand for guineas was due
to this cause Trade must have some means of payment ;
b ank notes will do but if they are not forthcoming the only
The country banks it was
a lternati v e i s to as k for guineas
said restricted their issues in sympathy with the Bank of Eng
lan d and henc e the drain of gold This argument is palpably
wrong The guineas were draw n out in exchange for ba nk
notes It is true tha t a curtailment of borrowing facilities
leads traders to hold larger bal a nces but those balances may
just as w ell be i n c redit as in money The demand fo r gold
in exchange for credit must have been due to one or all of
three causes a need fo r gold for export a need for gold as a
means of s mall pay ments especially payments of w ages or a
los s of condence i n the banks A loss of condence in some
of the country banks there may wel l have been ; failures
among them were fre q uent enough Bank o f England notes
did not circulate m uch outside L on don and su ch 105 5 of con
d e nce in the local b an k s would probably l ead to a demand
,
TH E B A N K R E S T R IC T IO N O F
for
17
26 1
97
C U RR E N C Y A ND C R E D IT
26 2
'
Fr en ch
Go d C o n
Au g
pt
17
se '
O ct
Nov
95
40 8 5
P rem
39 3
7 96
u m on
ngzg
per
cen
7 3 83
1 29 8 3
1 7 2 85
2 I 8 99
2 5 7 21 2
76
05
4 08 3
H am b ur
E xchang
D ec
l am .
F eb
F o re i n
Go d C i n
623 4
1 1 7 88
15 69 7
IO I
1 97
II 0
2 44 7
'
'
T H E B A N K R E STR IC T I O N O F
17
263
97
C U R RENCY AN D CR E DIT
264
T H E B A N K R E STR IC T I O N O F
17
26 5
97
C U RR E N C Y AN D C R E D I T
266
T H E B A N K R E S T R I CTI O N O F
17
26 7
97
'
C U RR E N C Y A N D C R E D IT
26 8
Thou ght
In h i s
De
s and
"
TH E
B AN K R E S T R ICT I O N O F
17
26 9
97
P E RCE N
T A G E VA LU E S
C o m mo d
E xc
gg
E xch ange
o n P am
nge
H am burg
Act ua
p r ce s
l
.
it i
es .
i
6 1d t
S il
'
Rat o 01
ces
p f
( S i lver )
ver
bg
Par
mi d
p er o z
1 00 0
1 80 0
1 07 0
1 8 01
1 09 0
Fr
ii
p er
p er 02 .
97
1 7 98
1 7 99
17
6o 84d
'
co
I
1.
98
96
I 03
113
1 00 o
I 06
s'
p er
1 02
PI
S?
7 82
s?
17
82
1 07 2
1 18
11
1 30
121
7 9
-
9
1 24 3
1 04 8
1 05
1 01
1 22
1 127
05
98 8
1 03
36
1 267
1 8 06
1 03 0
1 05
1 33
1 04
1 32
1 06
1 49
1 21
161
1 45
1 20
1 64
1 44
1 47
1 21
1 28
1 48
1 17 o
1 30
1 49
119
1 14
1 32
1 00
1 09
1 02 0
1 02
1 20
1 04 3
1 05
135
1 80 3
1 05
1 03 0
1 8 07
1 8 08
1 07
1 08
4
1 23 3
1 21 6
1 8 09
1 81 0
11
1 81 1
1 207
181 2
I 30 2
1 81 3
136
1 09
1 02 9
04
39
39
1 28
1 36 7
1 8 14
1815
117
1 06
N ata Th e
15
7 4
15
3
1 19
1 28
1 802
15
113
73
1 137
111 9
1 08 3
11
ur
1 10
1 41
H am
41
15 7 9
-
1 20
4
1 1 98
44
53
1 123
1 5 28
'
1 26 7
ars o u ght s t ri ct ly to b e g iv en as
t
e
f
b
y
p
i
a
h
o
n
m
e
n
co
a
d
c
s
a
n
e
m
n
r
a
n
mi
u
o
pr
to th e banco sch i ll i n g
d
d
6
a
n
f
c
t
r
n
1
d
t
h
e
a
o
95 5
ur e s
for
ev
ns
en
"
'
e.
r,
C U RR E N C Y AND
27 0
R E D IT
'
TH E BAN K R E S T R ICTI O N O F
17
97
27 1
C U RR E N C Y AN D C R E D IT
27 2
TH E
B A N K R E STR IC T I O N O F
17
97
27
18
27
C U RR E N C Y AN D C R E D IT
th e
T H E BAN K R E S T R I CT I O N O F
17
97
27
'
18
1
,
27
C U RR E N C Y AN D C R E D IT
'
17
97
27
27
C U RR E N C Y AND C R E D IT
When the war was over the party of pure reason came
into their own The doctrines of the Bullion R eport seemed
to have gained universal ac ceptance N o one was found to
argue as in 1 8 1 1 that as guineas could not legally be melted
or exported the price of bullion which w a s sought only for
export was no test of the depreciation of th e b ank note In
re s pon s e to an appeal from the Gov ernment party the
opponents of Peel s resolutions embodying the recommendations
of the H ouse of Lords Committee did not e ven challenge a
division
Traces are to be found in the debate of 1 8 1 9 of the views
w hi c h h a d led Ministers to s uppres s the mov ement to w ards a
resumption o f cash payments in the midst of the war eight
year s before C a stlere agh w h o wa s in o fce at both periods
defended the c onduct of the Bank D irectors aga i nst the
accu s ation of interested motives He declared that they had
never perm i tted s u ch mot i ves to hinder them from a ffording
that prompt and v igorous relief whi c h had it not come from
them he was him s elf utterly ignorant w hence it could have
proceeded A nd it is signicant too that the contribution of
the Bank D irectors themsel v es to the proposals embodied in
the Committee s recommend ations was a request that the
Government should rep ay
of its indebtedness to
the Bank The D ire c tors unfortun a tely did not sh are i n the
general c hange of attitude to w ards the teachings of the
Bullion Committee but here at any rate they showed an
a ppre c i ation of the pri mary cau se of in ation
,
C H A PTE R
A C H AN G E
X VI I
OF S
T AN D A RD
79
C U RR E N C Y AN D C R E D IT
280
A C H A N GE O F ST A NDARD
Yea r
Va ue o f
Tower Pound
( 1 1 % oz s Tr oy)
O ri
gin al S t andard
22
22
1 2 99
2 08 .
1 3 43
2 28 . 2 d .
1 3 46
228 .
135 1
25 3.
18
1 41 1
3 05
3 7 s 6d
42 3 a1d }
15
6d
46 4
1 5 26
D ebas emen
1 p er
cen
84}
2 01115,r
20
Pu
id
G ra n s
2 03 .
3d
28 1
10
12
20
10
11
'
'
Le
45 s th e
.
oun
d Troy of 1 2 o s
z
C U RR E N C Y A N D CR E D IT
28 2
e,
A C H AN GE O F S T AN D A RD
28 3
down the K ing s red and copper nose the neness was i n
creased to one half and the weight reduced by one third so as
to make the silver contents of the coins the s ame as before
S ince 1 5 4 5 the shill ing had weighed 1 2 0 grains and contained
4 0 grains of silver now it was to w eigh 8 0 grains only and
still to contain 40 grains of sil v er The M int price of silver
however w as raised to 6 4 s per pound ne
The autumn of 1 5 49 s a w the fall of S omerset but the new
Protector the D uke of N o rth um be r land did not make any
immediate improvement Indeed in 1 5 5 1 though peace had
been restored in 1 5 5 0 and attention w as alre ady turning to
wards a reform of the coinage an even more debased issue
w as resorted to
The weight remained the s a me a pound
being coined into
but the neness was reduced to one
fourth S ilver w as to be bought by the Mint a t 1 03 per 0 2
ne being a depreciation of 6 0 per cent as compared with the
price of 4 8 s a pound prescribed in 1 5 4 3 But this coinage
di ffered from the rest in being l i m i ted i n a mou nt It w as to
be no more than su f c ient to provide a prot of
and
subsequently it was decided to be content with
to
pay the K ing s debts and
for the fortications of
Cal ais and Berwick I t a ppears that the Protector hoped by
this l as t deb auch to restore nancial equilibriu m as a pre
l iminary to a return to s obriety I f the M int pri c e really re
presented the conditions o f the bull ion market it was high
time for this return But it w as ob v iou s that a further issue
of debased currency howe v er stri ctly l i mited in amount could
not but cause a further depreciation
At the very moment when this last issue was being author
ised the rst step towards a restoration of the standard w as
actually taken in a proclamation dated the 3 o th A pril reducing
the current v alue of all the debased coins by 2 5 per cent so
that the teston or s hilling was to d i sc h arge a debt of ninepence
only A more incongruous series of n a ncial measures there
could hardly be C ondence was at an end and doubtless
with a view to facilitating the absorption of the new issue of
1
w ould requ i r e co i n o f th e face val ue of
To pro i d e a p o t o f
Accord i n g to an e ntry i n Ki n g E dwar d V I s Journal on th e 6th
Sep tember 1 5 5 1 th e to tal i ss ue was
,
C U RR E N C Y A N D CREDIT
284
s
invent speak
i cti ng savage penalties on any w h o hould
o ne
fourth
'
"
A C HAN GE O F S T AN DA R D
28 5
r,
'
r,
un
ur r
enr
re
er
er
re
'
C URRENC Y A ND CREDIT
286
whereunto
to have raised the exchange from 1 6 3 to
it yet remaineth
Perhaps Gresham genuinely bel ieved that
this improvement in the exchange w as d ue to his o wn skill in
outwitting o r blackmail ing the English merchants
His
4d
'
A C H AN GE O F STAN DARD
287
con
'
'
CURRENCY AN D CREDI T
2 88
Rud i ng ,
vol
ii i
p 37
.
I
l
I
A C H A N G E O F STANDARD
2 89
Per
I9
of ce
of
Ki ngs
Exch anger
CURRENCY A N D CRED I T
2 90
'
ll
T hey were
A C H AN GE O F STANDA R D
29 :
'
19
29 2
on
exchange
England
A C H A N G E O F S T A N DAR D
29 3
CU RRE NC Y AN D C R ED I T
294
soever
An excellent theory of currency this with the great
A C H AN G E O F STAN DA R D
29 5
and a heavy coin more that the price o f silver meant some
thing more than the price o f silver in silver But of course he
had not arrived at the conception of a money o f account
measurable by its purchasing p ower in terms not only o f silver
but o f commodities generally a monetary unit a change in
the value o f which meant a change in all prices and wages
H e argued th at if the price of silver had risen that must be
bec ause silver was scarce owing as he said to an unfavourable
balance of trade And yet further on he attributes to the clipt
raising the price not only of merchandises
or bad moneys the
but even o f edibl es and other necessaries fo r the sustenance of
The rise in
the common peo ple to their great grievance
silver and the rise in go ld were merely symptomatic of a
general rise o f prices or in other words of a fall in the value
of the monetary unit Nowadays such a fall can be correcte d
1 69 5
not
without
tribulation
by
a
curtail
ent
o f credit
In
m
)
(
if the cl ipt coin was withdrawn
no such metho d w a s known
and coin o f full weight issued in its place silver must be ex
ported until the scarcity o f money compel l ed a reduction o f
prices Lowndes foresaw the export of silver though he did
not see that it w ould eventually be checked by a fall of prices
Locke remained bl ind to the danger Locke however a mi d
all his vigorous irrelevancies produced one argument which
deserved to be d ecisive If the mo ney be raised o n e fth he
it will weaken
aid
if not totally destroy the public faith
s
when all that have trusted the public an d assisted o ur p resent
necessities upon Ac ts of Parliament in the million lotte ry
Bank Act and other loans shall be defrauded of 2 0 per cent
4
f
o
r
o f what those Acts o f P arliament were security
,
'
C U RR ENCY A N D CRE D I T
29 6
'
'
A C H AN GE O F STAN DARD
29 7
si lver from the banks the B ank o f Engl and and the Goldsmiths
banks alike proceeded to d o so The Goldsmiths themselves
presented batches o f notes to the Bank o f England for pay
ment M acaulay quoting l H er m i tage says that this was the
result o f a plot and that the Directors on that ground refused
payment H owever pleased the Gold s miths may have been
to see thei r Wh ig rival in di f culties little plotting can have
been requi red to bring about a simultaneous exercise o f their
rights to demand silver from it at a time when they must have
CU RRE N C Y AN D C R ED I T
29 8
based on specie and the other on paper and the latter remained
simply unaffected by the recoinage There were two quota
tions o f the foreign exchanges the quotation in pa p er being
practically a s adverse as before When the B ank o f England
relieved from the strain of nding money fo r the war sur
mounted its d ifculties and paper and money pric es were again
i d entical the exchange on Amsterdam w as again unfavourable
From J u ly 1 6 9 7 t o the end o f 1 7 00 it remained between
This was
3 5 I a n d 3 5 1 0 a s compared with a par o f 3 7
nothing l ike the state in which it had been in 1 6 9 5 but it
meant that the money o f account had never quite ac co mmo
dated itself to the restored silver standard The guinea it is
true passed regularly at 2 1 5 6 d as compared with the legal
maximum of
but even 2 1 5 6 d was an overvaluation
The newly coined silver w as steadily drained a w ay just as
Lowndes had foreseen As the value of the guinea became
stereotyp ed the country settled down to a virtual gold stan
dard In 1 7 1 7 the dearth of silver beco ming serious Sir
Isaac Newton w h o held the post of Master of the Mint warned
the Government that unless something w ere d one silver coin
would soon be quoted at a premium i e the money o f account
and the metallic money would again part company He cal
cu lated that in order to counteract the overval uation o f gold
the guinea ought to be reduced to 2 05 8 d and recommended
that at any rate it should be red uced to 2 1 5
It w as xed at
by p roclamation and this being still an overvaluation,
2 15
hardly any silver was brought to the Mint to be coined for a
ce n tury The resid ue of the co ins o f William I I I remained
in circulation becoming more and more worn till at last in
1 8 1 6 the restricted coinage of ove rval ued silver o f l imited legal
tender w as in troduced Thus in the end the silver standard
so earnestly advocated by Locke never was effectively restored
The monetary unit o f account remaining persistently below
'
its nominal silver value assumed by use a gold basis Locke s
arguments however were not wasted They were called in
aid in the nineteenth century to de fend the gold standard more
effectively than in his o wn day to defend the silver standard
,
C HA FTER XVI I I
THE
GOLD ST
A N DA RD
'
2 99
C UR RE N CY A N D CRE D IT
300
S ee
l
l a
Append i x A
cy
th e r esu t s of a c tua
Colon i al C u
rr en
ys
s sa
quo ted
in S i r R
n ow
L ord)
Chal me s
r
TH E
30 1
to go rst and would ood the silver market and raise the
relative val ue o f gold The market ratio at Hamburg which
was 1 5 in 1 7 9 3 rose to 1
7 the highest level fo r sixty years
in 1 7 94 and 1 5 5 5 the highest till then known in 1 7 9 5
And this rise was perm anent In 1 7 9 3 9 5 the price o f silver
in London fell below the coin age price o f 6 2 d an 0 2 With
the un favourable movem ent of the exchanges in 1 7 9 5 9 6
both gold and silver rose above the coin a ge prices but a fter
the cri sis of 1 7 9 7 silver fell again and in January 1 7 9 8 was as
low as 6 0d
There was a danger that silver might begi n to
displace gold as the standard of value and an Act wa s hastily !
passed absol utely suspending the coin a ge o f silver and re
enacting the lim itation of legal tender which had been in force
from 1 7 7 4 to I 7 8 3 This Act o f 1 7 9 8 was intended to be
temporary and a Comm ission o f Inquiry was set up with
Lord Liverp ool as one of its members to advise as to the
future system of coinage But as the Bank Restriction Act
was prolonged and the country settled down to a p aper cur
ren ey it seemed su p eruous to discuss the coinage and the
inquiry was suspended Lord Liverpool took the opportun ity
to record his o wn recommendations in his famous letter to the
King which is recognised as o n e o f the greatest authorities
u p on the British coinage In this letter written i n 1 8 05
almost o n h i s death bed he po inted o ut that the gold sta ndard
had practically been al ready esta blished and elaborating a
suggestion made by Ada m Smith 1 he advocated the legal
recognition o f this condition of things by making silver legal
tender only fo r sm a ll amounts and by mak ing a substanti al
coinage charge fo r silver The coinage charge would dis
courage people from bringing silver to the Mint to be coined
and would make the use o f silver as the standard o f val ue
,
'
Weal th o f N ati on s
coi nage of
li mi t
ed
l egal t
B ook
e n d er
w as
not a
i
e
vol i i
every 2 05
pp 3 35
( Ru di ng Annals of th e C o nag
n
e,
302
i
e
d
l
P
t
R
o
l
a
b
r
a
m
o
n
it shall and may be law ful for
oc
ya
x
y a
'
As 44} gui neas were coi ned from a pound and a guinea was worth
pound was wo rt h 46 1 4s 6 d , and th e ounce 3 : 7 3 rod
1
th e
TH E G OLD STANDARD
303
unworkable
Lord Liverpool had foreseen th ese dangers
though he had by no means appreciated their importance
and he had as an afterthought suggested the remedy The
mere levy o f a co inage charge was no t suf cient in al l circum
stances to li mit the coinage o f s ilver ; the coinage o f silver
must be placed within the absol ute discretion o f the Crown
and no right could be le ft to private p ersons to have silver
coined at any stated price And l uckily the Act o f 1 8 1 6
could be ve ry readi ly adapted to apply this remedy N 0 p ro
clamation was ever issued xing the day after which people
might insist o n selling silver to the Mint 6 2 5 a pound 1 Their
right to do so th e re fo re re m ained in abeyance till the Act was
repealed by the Coinage Act 1 8 7 0 by which o ur coinage i s at
present regulated and which has nothi ng to say rega rd i ng the
price at which silver is to be purchased
The system might equally well have been threatened with
failure if th e market price o f silver had risen above 6 6 5 a
pound ( 6 6 d an ounce) for in that case it would have paid to
melt or export the silver coin But the French bimetallic
syste m was a safeguard against this hap p ening w ithout am p le
warning F o r so long as France had silver to export and
was bound to buy gold at the ratio of
the wo rld p rice of
silver could no t rise to 6 6 d an ounce which corresponds to
a ratio o f 1 41
It is a striking proof o f the degraded condition of the o ld
silver coin that the considerable quantity ( about
remaining in C irculation in 1 8 1 6 had survived the Bank re
strictio n without being ex p orted in spite of the p remium
which was at o ne time nearly 4 0 p er cent above th e coinage
price o f 6 2 d
Since 1 7 1 7 the British gol d coin had been the guinea o f
w hich di ffered inconveniently from the pound sterling
the unit o f account The opportunity o f the Coinage Act o f
gold piece (the value
1 8 1 6 was taken to revert to the 2 05
originally intended fo r the guinea ) and the o ld nam e o f
.
At th e
of s i ver
was
end of
actua
l l y 5 5 ai d
.
ro
pos ed
per
oz
M i nt pr i ce
l
H
une , 1 8 1 6 , w hen th e
of
26 .
w as too
h i gh
CURRENCY A N D CRED IT
304
30 5
"
20
306
C URR E NC Y AN D C REDIT
'
TH E
307
20
3 08
gold and the o l d silver coins the same ratio o f 1 5 5 had been
adopted as prevailed in France and till 1 8 7 3 the ratio in the
market d id not di ffer materially from this But in 1 8 7 2 N or
way Sweden and Denmark followed the German example
and adopted a gold standard embodied in the Scandinavian
Convention ( 1 8 th December
On the 2 1 5 t May 1 87 3
Holland suspende d the free coinage o f silver By that time
the increased demand for gold had begun to affect its price in
terms o f silver In 1 8 7 3 the ratio approached 1 6 in 1 8 7 4 it
exceeded that gure The new production of gold from the
mi n es had fallen o ff and the bimetallic countries had hastily
to limit and ultimately to suspend the free coinage o f silver
fo r fear o f being rapidly denuded o f their gold and le ft with a
silver standard There ensued an ever increasing divergence
of the ratio fro m the o l d gure o f
The various countries
which had p assed from a silver or bimetallic to a gold standard
fo r the most p art retained their o ld silver coins in circulation
as unlimited legal tender though except fo r subsidiary coins
they issued no new silver The ve franc and three mark
pieces became tokens of which the intrinsic value was below
and soon far below the nominal value It will be seen that
this very important change o f standard was e ffected without
any d i sconti nu i ty
Moreover unlike the mediaeval debase
ments it was a change from a lower to a higher unit of value
When the d i e rence in value did make its elf felt there fo l
lowed all the consequences o f an app reciation o f the standard,
fal ling prices depressed trade l ow prots unemployment
But the qu estions o f principle involved in a change of
standard were hardly raised in the case of the countries which
substituted gold fo r silver while on a metall ic basis To nd
these questions agitating the minds o f Governments we must
turn to the countries which in 1 8 7 1 were using inconvertible
paper and which were faced with the proble m o f a resu mption
o f specie payments
The United States had issued inconvertible notes (called
Greenbacks during the C ivi l War to an amount approach
ing the authorised maximum o f
I n the last year
o f the war this paper money had depreciated more than 5 0 per
,
TH E G O LD STANDARD
309
310
wards the United States which was then the greatest o f new
countries In the four years 1 86 9 7 2 the railways o f the
United States were increased by no less than
miles
Since the C ivil War the foreign trade returns had shown an
e x cess of imports over exports which in view o f the heavy
annual l iability of the country for interest on capital previously
obtained from th e Old World impl ied that a very large
amount of fresh ca p ital was being im p orted This excess of
imports amounted for th e four years 1 8 6 9 7 2 to
or
a yea r while a fter this period an excess o f
exports was the al m ost invari a ble rule Here we have an i h
stance o f the stream o f investment from the old countries to
the n ew incre asing i n volume with the revival of trade and
al so o f the consequent fa voura ble tendency o f the foreign ex
ch anges i n the ne w countries The rise in the gold value of
the p ap er dollar from 7 4 at the end of 1 8 6 8 to 8 2 3 at the
end of 1 8 6 9 and 9 0 3 at the end of 1 8 7 0 was d ue to the com
bi ned e ect of the reviv a l of c r edit w hich reduced the value
o f gold in Europe and of the ow of fresh c a pital into the
Fro m the end of 1 8 7 0 ti ll the Cr i s i s of 1 8 7 3
United States
,
'
'
31 1
C URRE N CY AN D CRED IT
312
'
'
T H E G O LD STANDARD
3I 3
in the period 1 8 1 5 2 I
In both cases there is an easy but
deceptive appreciation which really only reects a credit ex
pans i on in th e gold using countries ; a reaction caused in the
rst instance by the contagion of the credit expansion and
then intensied by the outbreak o f a crisis abroad a crisis at
home precipitated by the fall o f prices ; and nally a rise of
the note to par facilitated by a relie f o f the stringency abroad
The extreme difculty in restoring the value o f a depreciated
currency at one time and the ease with which this can be
done at anothe r are explained by the changes in the value o f
gold The period s o f depression in 1 8 1 5 an d 1 8 1 8 1 9 in
1 8 6 6 6 8 and 1 8 7 4 7 6 were very unfavourable the periods of
expansion in 1 8 1 6 1 8 1 8 1 9 2 0 1 8 6 9 7 3 were very favourable
to a paper currency It must be admitted that the rise of the
gree nback in the years 1 8 7 7 7 9 when Europe w as still in a
state o f depression calls fo r some further explanation But
the causes mentioned a bo ve the contraction of the currency
the natural growth o f business i n a new country and the ex
cepti o nally productive harvests probably supply a s u i c i e n t
explanation The two periods I 8 6 9 7 2 and 1 8 7 6 7 9 were both
favourable to the appreciation o f the greenback no tw i th
standing that the rst was marked by an exceptio na l excess
o f imports and the second by an exceptional excess of exports
1 8 7 2 the imports everage d 5 3 2 and the exports
of dollars ; from 1 8 7 6 to 1 8 7 9 the imports
and the exports 6 7 8 mill ions N o more striking
d be desired o f the danger o f leapi ng to a co n
the bare fact o f a
favourable
or unfavour
able balance o f trade If the un favourable balance is due to
'
CURRENCY AN D C REDIT
314
TH E
month
m of
G O L D STA NDARD
31 5
more th an
and no t less tha n
was to be spen t o n the pu rchas e o f silve r for
coinage into dollars At the then price o f silver
worth would be coined into about
standard dollars
and the minimum a mount o f coinage provided fo r was th u s
abou t
a year
Thi s was a very considerable
annual add ition to th e circulation
The whole currency o f
the coun try consisted o f $3
o f greenbacks and
o f Nati onal B ank notes together with a mode r ate
amount o f gold whi ch had remained in ci rculati on ( in deance
An annual addition
of Gresham s l aw) in the extreme West
to this total might eas ily th reaten the gold
of
standard As it turned o u t however the silver coinage was
for some years ab s orb ed wi t hout di ffi culty
The yea r 1 8 7 9
saw the turning point in trade There was a sharp rise o f
prices in the latter part o f that year which continued in 1 8 8 0
Credit expanded an d the U nited State s n o w on a gold basis
participated in the world movement The importation o f
foreign capital reviv ed and notwithstanding the continuance
the excess o f exports began to diminish
o f good harvests
( though even at the height o f the movement in 1 8 8 2 there
was not an actual excess o f i m ports such as marked th e period
before
The tendency which in 1 8 7 0 had expended
itsel f in raising the value o f the pape r currency no w req uired
a great addition to the metallic currency The statutory silver
!coinage was q uite insu f cient and l arge importations o f gold
became
necessa
ry amounting in th e two years 1 8 7 9 8 0 and
!
no t
CURREN C Y AN D C RED IT
3 16
'
T H E G O LD STAN DA RD
of
3 17
'
In th e
l ost not i ng
end
th e assets
more than
covere
the
CURREN CY AN D CRED IT
318
TH E
G O LD STAN DARD
319
ref
CURRENCY A ND CRED IT
32 0
C H A P TER
X IX
TH E G O L D S T N D R D
( C onti nued )
32,
21
32 2
'
TH E G O LD STANDARD
323
'
21
CU RR E N CY AN D C REDIT
32 4
'
'
'
TH E G OL D S TAN DAR D
32 5
3 26
CURRENC Y AN D CREDIT
THE GO LD STA N DA RD
%d and early in
1 8 80
32 7
25
S ee
Re ort of
(M emorandum by M r
As
l C om mi ttee
ld
Th
H o h le )
Fo w
.
er
e o
8 1 m ark s,
25
I n di an C urrency Appendix No 5 9
s
o bl e h d b e n al mos t exac tly 4 f anc
r 81
of th e ol d roub l es were worth at pa
on
r u
32 8
897
and
bl
m ark s ,
.
to
h h
10
1 00
b
h h
ll
bl
TH E GO L D STAN D AR D
3 29
'
'
'
CU R RE N CY AND C R ED I T
33o
'
'
'
'
TH E GO L D S TANDARD
33 1
in 1 899 and an attempt was made to put these coins i nto cir
culation by redeeming notes and mak ing other Government
payments in gold unless the payees expressly asked for silver
B ut it soon became clear that the gold was not wanted The
Indian Go ve rnment was stil l bound by its undertaking to pay
o ut rupees in exchange for gol d and as fast as the gold was
paid out it was presented fo r exchange into rupees The
effect was to substitute gol d fo r rupees in the reserve held by
the Govern ment against the note i ssue and the depletion of
the rupees i n that reserve soon became embarrassing I f in
default o f rupee s it became n ecessary to insi st o n redeeming
the notes in gold the credit o f the notes might be ruined
Indeed a momenta ry fai lu re o f the supply o f rupees at Calcutta
7
in Ap ril 1 9 00 actually drove the notes to a d iscount o f T,; per
cent and gold itsel f to a d iscount of 1 per cent The re medy
In
o f course was t o coin more ru pees and this w as done
the nancial year 1 8 99 1 9 00 rupees were coined to the amount
1
making the large
o f 1 32 lakhs and in 1 9 00 1 1 6 94 lakhs
total o f 1 8 2 6 l akhs o r
This raised the q ues
tion of the accumulation o f the reserve o f gold as reco m
mended by the Fowler Committee o ut o f the prots o f coin
age The failure o f the attempt to force gold into circulation
had enhanced the im portance of this recommendation and the
recommencement o f the coinage o f rupees called for an i m
mediate decision o n the point It was settled that the reserve
should be created The reupon it was real ised that i f this
reserve was ever to be used it would be wanted in L ondon
To accum ulate gold in India would there fore be an unnece s
sarily cumbrous proceed ing as the gol d would probably in the
rst instance have to be attracted o r at an y rate diverted from
the London market and would then have to be sent back to
London whenever needed I t was decided to accumulate the
reserve in London and to hold it in the form o f interest yield
ing securities This reserve the gold standard reserve as it
came to be call ed was only to be used i f the rupee began to
,
lakh
S o l ong as t he r up e e
pees and 3 crore
W i t h th e
was about 2 s a crore m eant ab out 1 oo o ooo a d a l akh
1 3 s 4d and 666 6 1 3 s 4d res p ec ti vely
rupee at rs 4d
th ey are
1
is
ru
C U RRE N C Y AND CR E D IT
3 32
fall
TH E
G OLD STANDA R D
333
C URRENCY AN D CRE DI T
3 34
TH E G O L D S TAN DARD
33 5
A B S O RP TIO N
Rup ees
1 8 98
99
1 8 99 1 9 00
1 900 1
1 9 01 2
1 9 02 3
I 9 03 4
I 9 04 5
1 905 6
1 9 06 7
1 90 7 8
1 9 08 9
1 9 09 1 0
1 91 0 1 1
1 91 1 1 2
1 91 2 1 3
( L A KH S )
O F C U RREN C Y
N o tes
25 1
1 1 23
17 2
127 5
18
211
31
25 9
32 8
3 45
1 05 9
7 94
1 46 6
1 7 26
42 5
I SS7
1 4 03
39 2
1 066
'
1 049
re
To tal
The
2 24
1 2 95
1 25
2 42
6 04
1 38 7
830
1 88 3
41 7
38 3
38s
23 5
5 03
19
4 44
2 1 09
40
1 3 2 2
1 9 06
41 1
15 10
1 3 20
27 1
3 36
1 8 9 9 1 9 00
The great bulk o f the population is purely
agricultural The agriculturist in ordin ary times has little
requirement fo r money in the shape o f sil ver coin he is him
sel f the producer o f a large p ro portion of the food be con
sumes and h i s other wants which must be satised by purchase
are triing In seasons o f fam ine however the situation is
changed The food consumed by the su ffering ag i i cul turi st
must be p urchased and paid for with coin and as credit dries
up in times o f distress all his other require ments must equally
be paid fo r in cash
'
THE
G OLD
STA N D ARD
3 37
case o f need
Finally a fter the third crisis that o f 1 9 0 8 when the d i f
culty was not to provide rupees fo r ci rculation but to with
draw th e hundreds o f lakhs o f redundant rupees from circulation
fast enough to save the exc hange from depreciation below
the gold point the I ndian G overnment wrote a despatch to
the Secretary of State dated the I s t April 1 9 09 reviewing
the situation
During the period from November 1 90 7
when exchange rst fell substantially below I s 4 d until the
end of J anuary last we lost 1 5 m illions o f our gold
This is the result o f a l ittle m ore than a single year o f adverse
conditions and o f a famine which was more restricted in i ts
area than is frequently the case with similar calamities
Confronted with these three O pinions the conscientious
inquirer may be forgiven if he feel s dissatised I f s o severe
a famine as that of 1 8 9 9 1 9 00 caused the great demand fo r
rupees which marked those years why did a famine which
was more restricted in i ts area than is frequently the case with
similar calamities have precisely the contrary result and pro
duce an inux o f redundant rupees and a dema n d for ex
change ? And why did a famine in 1 8 9 9 1 9 00 have the same
effect as the good j ute and cotton crops and the activity o f
trade in 1 9 06 7 1
The Sec retary o f State replying o n the 2 nd July 1 909 to
the Indian Go vern ment s despatch of the I s t Apri l pointed
it occurred at a
out that even if the famine was restricted
time when conditions were exceptionally adverse to the main
The e ffect o f the famine in reducing
tenance of exchange
India s power o f exporting certain articles was felt at a time
when the foreign demand for the articles India was able to ex
port was seriously restricted by com mercial depression through
o ut a large part of the world intensied i f not largely brought
"
22
CURR E N CY AND CR ED IT
338
THE
GO L D
ST AN DARD
3 39
'
22
3 4o
T H E GOLD ST AN DAR D
34 !
was sligh t and the fall great This merely mean s that th e
price o f silver mani fes ts the same tendencies as the prices o f
other commodities and it has continued to do so quite as
clearly since 1 8 9 3 as be fore
The essential feature o f the gold exchange standard as
established in India is the adoption o f the rate o f exchange
as the ind ex o f the d eman d fo r rupees and the issue and with
d rawal o f rupees accordingly
It does not really matter
whether the rupees are issued or withdrawn in the process o f
selling exchange by whatever means they are issued or with
drawn the value o f the rupee will be determined by the quan
ti ty in circulation A fter the experience o f 1 9 08 some people
argued that the gol d held in India in the currency reserve
as when paid o ut in exchang e fo r rupees it was not exported
but remained in the country was less efcacious in maintain
ing the rupee than th e gold hel d in London which came
directly into the exchange market But the gold in India
performed the essential function o f redeeming rupees Even
i f it was not exported it w as n o t wanted as currency but as
a commodity fo r the demand fo r gold ornaments was by no
means completely interrupted by the adverse trade conditions
In proportion as rupees were locked up in the vaults o f the
Govern ment the power o f the public to o ff er rupees in ex
change for E uropean goods w a s impaired and the un favour
able exchange was redressed I t is a mistake to lay too much
stress o n the actual means o f discharging the trade balance
An adverse trade balance m ay be crea ted by a redundant
currency and can be corrected by a contraction o f the
currency
The Indian currency system like all others has been p ro
At the outb reak o f w ar the
fo u ndly a ffected by the war
sudden trans formation o f England from a lending to a borrow
ing country turned the exchanges against all the countries
which had been nanced by her and in particular against
India the exchange falling to I s
To restore equ i l i
Not only
bri u m a contraction o f the currency was neces sary
could no t Council Bills be sold in London but as in 1 9 08
bills on Lon don (co mmo nl y c alled Reverse Councils h ad
.
342
6d
34 3
1 8.
XX
CHAPTER
AFTE R
TH E
WA R
344
A FTER TH E W AR
345
'
Tr
346
CURR ENC Y A N D CR ED IT
maintai ned s i nce 1 91 5 , has recently been rel inqu is hed i n favour
-
c ondi ti ons
of free
1
.
Freedom
i n th e
exce t
p y
l i cence,
AFTER T H E WA R
34 7
34 8
A FTER T H E WAR
349
war
CURRENC Y AN D CRED IT
350
Unde
th e co ndi ti ons
d eepi te th e m i l l i ons
of
w or
a sh orta ge of
labour
W AR
A FTER TH E
pay men t
35
'
'
352
AFTER TH E WAR
To o rapid a
353
'
suddenly accelerated
23
CURREN CY AN D CRED IT
354
A F TER TH E W AR
l egal tender currency in circul ation is paper and i f it is made
to pass at a value approximately equal to t hat which it then
has in the market th ere is n o reason why there should be
any immediate i mportation o f gold If a favourable time is
chosen when the world value o f gold is falling the exchanges
will become favourable and the stock o f currency will have
to be supplemented by the importation o f gold
But i f the
world value o f gold i s rising no gold will be imported and the
paper money wi l l be depreciated even below its new value It
is such a mishap as this which sometimes leads to the comp lete
d iscred it o f pa per mone y when a general contempt o f the
legal tender laws makes it useless and i t no longer has any
value except fo r speculators w ho buy it at an extravagant
d iscount in the hope that the Government may ultimately
As is shown by the experience a fter
pay s omething fo r it
the collapse o f the assignats this sudden abandonment o f
paper money as the medium o f payment occasions a prodigious
d emand fo r coin and may cause innite embarrassment to
oth er nations
And in o ne way this cutting o f the knot intensies rather
than mitigates the evils o f a gradual contraction o f the cur
The root cause o f those evils is the increase i n the
rency
burd en of debts as com pared with the value o f commodities
From the point o f view o f equity it is an advantage that the
standard is restore d wi th out delay fo r purposes o f account
even i f the paper money issued under Government auspices
is partially repudiated But this means that the increase in
the debto r s burden is m ade at a single stroke instead o f being
spread over a period o f years Therefore the method in ques
tion is very d angerous except when traders in d ebted ness has
been red uce d to a negli gi ble amount If thi s condition is not
A fter
fullled there is al most certain to be a severe crisis
to face
i
the
collapse
the
assignats
was
simply
impossible
t
o
f
1
i this su d den increase in d ebtors burdens and legisl ation was
passed to adj us t pas t c ontracts according to the value o f the
assignats at the time each contract was made
The burd en o f an increase in the purchasing power o f the
mone tary unit wheth er i t be sud den o r gradual is n o t
,
23
35 6
CURRENCY AN D CRED IT
onned t o the case o f the debtor Fal ling prices d eter trad ers
from holding stocks o f goods ; new orders are checked and
production and employment fall o ff But in the case o f an
arbitrary readj ustment o f the unit there is likely to be less de
pres sion than in the case o f a gradual contraction o f credit
I n the former alternative wages prices and other money
values would almost inevitably be translated forthwith fr om
the o l d unit into the new If this is done th ecosts o f p ro
duction adapt themselves immediately to the new level o f
values ; producers quote prices correspondingly reduced ; mer
chants having no reas on to expect a f u r th er fall o f values
are ready to buy ; they may have suffered losses but that is
past and done with and their position can only be retrieved
by protable trading If there is a crisis accompanied by
many failures there may be disorganisation and a temporary
depression o f output and em ployment But this is quite
di ffe rent from the depression o f a prolonged credit contraction
when prices go on falling and the merchant repeatedly nds
hi s prot turned into a loss when the manu facturer cannot
reduce q uotations till he h as reduced wages whe n the work
m an dare no t accept a reduction o f wages which interrupted
as they are by periods o f unemployment seem already i n
su fcient
But there i s another short cut to the establis hment o f a
gold standard A new gold unit may be introduced repre
senting approximately the existing gold value o f the paper
unit This w as the method adopted by Austria Hungary
Russia and India between 1 8 9 0 and 1 9 00 It was the ac
ce p te d remedy fo r currency troubles in the Middle Ages and
later until the time o f Locke It has the advantage o f recog
? a ccompl z
n i s i ng the f a n
The monetary unit has deprecia ted ;
that may be deplorable but it is no u s e trying to ignore it
To st ereotype the depreciated value m ay be an injustice to
the cred itor but to restore the o l d standard would be an i n
j ustice at any rate to some debtors And the debtors s uffer
more from a rise in the val ue o f the m on etary unit than the
creditors from a fall S o far as short term indebtedn ess goes
the credi to rs are mainly bankers whose as sets and liabilities
c
'
AFT E R TH E WAR
are both expresse d in the m oney o f account The purchasing
1 po wer o f their prots and the real value o f their capital and
reserves may be dim inished i f the monetary unit is d epreciated
At the worst they su ffer some loss B ut o n the other hand
whe n the val ue o f the monetary unit i s raised traders are
threatened n o t merely with loss but with ruin and incident
ally this may d o serious injury to their creditors And in
fact on the whole both debtors and creditors are inclined to
favour ination and depreciation
The real loss falls o n the
lo ng ter m cred itors the hol ders o f debentures and other xed
interest yielding secu r ities A grea t part of these securities
will have been created be fore the depreciation occurred To
perpetuate the depreciation is to revi se the contract in favour
o f the debtor
The temporary loss o f real income due to the
d epreciation which lasts during the nancial strain o f a war
i s a minor evil which th e i nvestor can put up with
A per
manent reduction o f the purchasing power o f his income is a
much more serious matter
So long as society depends o n
voluntary investment fo r its supply o f capital an attack upon
the purchasing power o f interest is dangerous It must be
remembered that what the .debenture holder loses is gained
not by labour but by the s na r e/
whose dividends are
told
swollen by the residual prots A revision o f the stan da rd
o f value introduces a capricious element into the investment
o f capital and especia lly threatens the class o f n o n spec ula
tive investors wh o play s o considerable a part as the
How
sleeping partn ers o f the modern capitalist system
far this is contrary to the mater ial interests o f society is a
subject o n which much m ight be said ; that it is an inj ustice
s o lon
g as the capital ist system continues seems unquesti on
able
B ut there i s o ne class o f investor which is in an altogether
spec ial position mor e particularly in post war nance Tha t
is the holder o f the natio nal debt
The re is no need to enlarge upon the invidious posi tion
o f a S tate which has to decree in what unit o f value its o w n
O f course debts may be made
d ebts are to be calcul ated
In that
exp res sl y pa yable i n gol d or i n a foreign currency
.
35 8
case the di f culty does not arise It did not arise in the
United States a fter the C ivil War or at any rate a ft er it was
agreed once and for all that the Civil War debt was a gold
debt But what is to be done in a case where the national
debt is payable in the national currency and the basis o f the
national currency is to b e altere d ? It may be said that
whatever i s done in the case o f private debts the national debt
ought to be made payable in whatever metal lic standard was
in operation when it was incurred If the gold unit o f cur
re nc
y is reduced the interest and principal o f the debt must
be paid in the old unit But this i s to give the stockholders
more than they bargained fo r When they invested it was
with no idea o f claiming a pre ference over other investors and
to give t h em an uncovenanted ben et is an injustice to these
latter who have to pay ta xes towards meeting the cost of it
If the national debt holders possess this right it ought to have
been made clear at the time when they subscribed to the
loans ; fo r then the State could have had the advantage o f
getting favourable terms fo r what would have been a gold
loan It would be dishonourable to alter the standard fo r the
purpose o f lightening the burden o f the national debt But
i f the standard i s to be altered on gener al economic ground s
i s it not irrational to give the national cred itor a privileged
position merely in order to save the appearance o f arbitrari
ness ? And i f as is very probable the greater part o f the debt
has been incurred during the war when ination was in pro
gress i s it not a departure from al l reason and justice to select
the national creditors o f al l others to be repaid in the o ld
standard ? The pre war debenture holder in a trading con
cern who lent money o f the old standard is to receive interest
and principal in money of the new H is neighbour who lent
the Government depreciated paper is to be sing led o ut to re
cei ve pay ment in the o l d standard
The principle o f repaying debt in currency o f equal value
t o that in which it was origina l ly incurred was adopted in the
American War o f In d ependence and by Austria H ungary in
It w as not applicable
181 1
( S ee above p 306 and p
in Englan d a fter 1 8 1 5 i f only because d ebts of di fferent dates
.
A FT E R TH E WAR
359
had bee n consol idated and th e holdings were not disti n guish
able from one another
But a fter all the most powerful argument t o be urged in
support o f the inclusion o f the national debt w i thin the opera
tion o f a new and d e preciated monetary standar d is that other
wise the strai n may be greater than the country can bear If
the Government nances can only be carried on by means o f
fresh ination the attempt to restore the metallic standard
even by a cutting o f the k not will fail and in the end the
public creditor will o n ly be paid in paper
And yet this i s itsel f the strongest argument fo r restori ng
the old standard if i t ca n be don e If the real reason for
abandoning the standard under whatever plausibl e pretext is
believed to be necessity the national credit will suffer The
nation can only escape condemnation fo r a breach o f faith at
the price o f a con fession o f nanc ial impotence
We s ee then that a fter the orgy o f ination which seems
to be almost a necessary accom paniment o f modern war co n
d ucted o n the grand scale variou s currency policies are possible
and eve n when the pol icy o f any particular country is selected
its absorption o f gold may vary within wide limits Gold may
enter into actual circulation immediately ei ther because the
issue o f paper money has never been su f cient to depreciate
th e stan d ard at all or because the paper is made to pass at its
depreciated value or because a n e w gol d standard has been
adopted In such cases i f the currency require ments grow
and no new uncovered paper money is issued to meet them
gold will be brought to be coined or to support an increased
note issue And whatever the standard may b ei f it be an
or to be regained o r never lost o r i f
o ld standard regained
it be a new stan d ard establ ished or hoped fo ra gold r eserve
large or small may be aimed at o r the gold exchange system
can be adapted to dispense with a reserve altogether Thus
o f almost u n
the
absorption
gold
is
everywhere
capable
f
o
l
lim i ted variation And the world val ue o f gold depends o n
the absorption of gold If there i s a general tendency to ac
cumulate gold reserves and to restrict issues w ith a Vi ew to
increasing the circulation o f gol d coin the value o f gold i n
,
'
36 0
CURRENCY A N D CRE D IT
more they bid against one another fo r gold the greater the
o f gold in
Moreover
the
greater
the
value
s acr i ce involved
E
commodities the more d ifcult will it be to establish or to
maintain a given gold standard Thus a scramble fo r gold i f
it occurs at a ll will probably check itsel f be fore it has gone far
Seeing that the interests o f every country in regard to the
gold standard depend upon the action o f all the rest and their
action may vary quite capric iously within such wide limits
some sort o f international co operation seems to be required
But international c o operation at once raises the delicate q ues
tion o f national obligations If all the co operating states are
burdened with heavy war debts it will be to the interest o f
all to keep down the value o f gold by restricting the demand
fo r it
Are they going to combine openly or under a pretext
to depreciate the medium in which their debts are payable ?
This is not quite the same thing as to inate a paper curre ncy
fo r the purpose o f lightening the burden o f the national debt
fo r gold in any case has an intrinsic val ue as a raw material o f
indust ry But the limits o f its variation are incalculably wide
and a general understanding to economise the use o f it as
currency would have a prodigious e ffect But i f States
generally agree to moderate thei r e fforts in this direction the
picture o f the plenipotentiaries deliberating h o w great an
articial demand fo r gold must be set o n foot in order that
the burden o f their debts may be made su fciently heavy and
honour may be satised is no t altogether convincing And
the problem i s stil l further co mplicated by the in terest of
.
'
A F TE R THE WAR
36 1
36 2
CURRENCY AN D CRED IT
AFTER TH E
WA R
36 3
C H APTER XX I
C
O N C L U S IO N
3 64
C O N CLU S I O N
36 5
prices and si milar devices But o n the whole for most people
sound currency stil l means as it has long meant a metallic
c urrency
It is the only bulwark against i nati o ni s m that
insidious nancial vic e which seem s so attractive but over
indulgen ce in which may en feeble o r wreck the sys tem
But to recommend a dog m a o n account no t of its i n
herent validity but o f its good practical consequences is a
dangerous method
When people discover i ts theoretical
weaknesses they may n o t only reject the dogma but neglect the
practical consequences It is best t o know the weaknesses of
a friend other wise o ur friendship is precarious and may be sur
prised and broken by a bel ated discovery
Ination means a t o o free c reation o f cred it The classical
t heory o f cu rr ency teaches us t o guard a gainst this by tying
down cre d it rigidly to a metal lic basis It rightly holds paper
money
and
debased
or
over
val
ued
metallic
money
to be
2
'
d angerous expedients
But in treating them no t merely as
d angerous but as the negation o f truth it goes too far
One consequence is that the true nature o f a money o f
account has been obscured I f a credit has no other meaning
than an obligation to pay so much gold there is no room for
the conception o f a unit for the mea surement o f debts as dis
ti ngui s hed from a unit fo r the measurement o f gold
8 0 long
as debts are in fact payable in gold the neglect o f the di s
tinction is innocuous But it is j ust when the monetary system
becomes deranged an d debts are no longer payable in gold
that cu rrency theories which may usually be le ft to the care
o f economists gain practical and pol itical importa nce
In the H ouse o f Commons debates o f 1 8 1 I on the Rep o rt
o f the Bullion C ommittee the supporters o f the Committee
merciles sly ri d icul ed their opponents fo r suggesting that the
monetary unit could be anything except gold o r silver
Canning in what was perhaps the most brill iant speech o f the
whole long d ebate ( 8 th May 1 8 1 I ) taunted Castlereagh with
dening the standard to be a sen se o f value in re ference to
com mod ities
The Bullion Committee had been accused o f
.
36 6
o f abstract theories
said Canning
comes from whom ?
From the inventors and champions o f abstract currency
fro m those w ho a fter exhausting every attempt to nd an
earthly substitute fo r the legal and ancient standard o f our
money have divested the pound sterling o f all the properties
to
pay
a
Pound
Un less we are agreed as to the
g ag e me nt
answer to these questions it is in vain we attempt to l eg islate
on the subject If a Pound is a mere visionary abstraction a
.
'
S mi th
Thi s i s
,
not tru e
w i th out
a n ac cou n tant ,
w ro t e tw o pam p hl e ts ,
t h o u gh i n o th er r es p e c ts h e
n o n s e ns e
v ers i es .
w h i ch
M r Thomas
pam ph l et eers
befor e th e C om m i ttee of 1 8 1 9 and
con ce pti on o f a
o ney o f
ccou nt ,
excep ti o n o f
in
co ntribu ted
th e
C O N CLU S I O N
36 7
n i ti o n o f a
P ound in that case another class o f measures
relati ng t o pa per currency will be requisite
Now the whole
foundation o f the proposal I am about to make rests upon the
assumption that according to practice accord ing to law
according to the ancient monetary policy o f this country that
'
C U RR E N C Y AN D CRED IT
36 8
Gold is given its coinage price and to m ake this pri ce a real ity
it is decreed that every debtor may be req uired i f his creditor
s o desires to pay in gold at that price
The result is that the
dealers in debts have to keep a part o f their assets in gold in
order to be in a po sition to comply with their legal obligations
But this plan o f making debts payable in gold is merely a de
vice fo r keeping the variations in the value o f the monetary
unit within bounds The value o f one commodity in terms of
another i s regulated by the conditions o f supply and dema nd
and so long as those conditions do not vary greatly o ne com
m o d i ty is as good a standard o f val ue as another
In practice
conditions o f both supply and demand are apt to v ary a good
deal and the precious metals being less subject to wide and
rapid uctuation s than almost any other commodities as wel l
as being well adapted fo r coinage have been generally selected
as the basis o f the moneta ry system But convenience alone
has been the ground o f this cho ice To say that the monetary
unit o f account has no m ea ni ng but the precise weight o f gold
or silver which it represents at the coinage price is agrantly
untrue When Castlereagh dened the pound sterling to be
CON CLUS I O N
36 9
upo n it to d eter m ine its weight and neness claimed that this
was so according to practice according to law accord ing to
th e ancient moneta ry policy o f this country
The argument
was n o t th at n o other monetary system was possible b ut that
as this mo netary system actually ex isted an engagement to
pay a pound must be interpreted in the l ight o f it and to dis
charge it otherwise than by the payment o f the stipulated
quantity o f gold would be a breach o f faith This is the real
foundation o f the classical theory
To secure a sound cur
re ney against all attacks it is not enough merely to prove that
it is invariably expedient to maintain a metallic standard ; a
d eparture from that standard must be shown to be actually
dishonest the system must be securely founded o n a categor
ical imperative
But this categori cal imperative d i d no t necessa rily preclude
any change o f standard whatever Just as loyalty to the d e
f acto monarch even though a usurper w as recognised a s inno
cent by the law o f trea son so with lapse o f time a monetary
standard in its ori gin an immoral debasement might become
entitled to recognition
Queen El izabeth whose boast
moneta i n j us tu m va l or em r eda eta P eel held up to approbation
in the debates o f 1 8 1 9 did no t go back to the standard that
existed in I 5 4 3 but coined a Troy pound into 6 05 instead o f
And the coinage price o f silver 6 2 3 to the poun d
45 5
which survived till 1 8 1 6 was the result o f a further debase
ment by Elizabeth hersel f which though slight did not d i er
The classical
i n pri n ciple from the mediaeval debasements
theory o f currency could not but condemn any debasement
but a change o f standard fro m silver to gold or vi ce vers a
might be per fectly legiti mate There was nothing contrary
to the categori cal imperative in the change from a silver to a
gold standard in Germany in 1 8 7 3 A promise to pay 9 30
thalers meant be fore the change 1 5 % k ilogr ammes o f silver
But there was
and after the change a kilogram me o f gold
no b reac h o f faith because a k ilogramme o f gol d was equal
I f Mr Brya n and th e
i n value t o I 5 % k ilogramm es o f silver
s ilver party had wo n the presidential election in the United
S tates i n 1 8 9 6 a d ebt of $1 00 would have becom e pay able
,
'
24
C U RR E N C Y AND CRED IT
37 o
in
5 0 grains o f silve r ( nine tenths ne) instead o f 2 5 8 0
grains o f gold This would have been a reversion to the
pristine standard o f the country but it would none the less
have been unj ust to creditors because the silver was at that
time worth no more than hal f as much as the gold
B ut to admit value as the test is really to abandon the
categorical imperative If a bull ion dealer contracts to deliver
o f gol d it is not a fullment o f the contract to
oz s
deliver an exactly equival ent value o f silver If a purchaser
contracts to pay money neither party to the agreement con
siders in what medi u m the debt will be payable The medium
o f payment and consequently the value o f the debt will be
settled by the law o f the land The medium o f payment in
fact is not part o f the contract
And this is true as much of
a promise to pay as o f an obligation to pay If payment were
desired in any particular medium this would be expressly s ti pu
lated ( as it o ften is in countries where the currency system
does no t command condence)
Along with the categorical imperative the moral o bj ec
tions o f the classical school to inconvertible paper money fall
There remain the objections on the score o f
to the ground
expediency These arise chiey from the ri sk o f abuse If
a paper issue is s o regulated that the foreign exchanges are
kept near par and that the purchasing power o f the monetary
unit in terms o f commodities does not vary unduly the n the
advantages o f a sound currency system have been obtained
But unless there is some generally recognised international
standard o f value these conditions may be unattainable and
may not even be consistent with one another Till 1 8 7 3
the international standard was provided by gold and silver
linked together by the bimetallic system Since the break
down o f bimeta llism it has been provided by gold The test
o f every paper currency has there fore been parity with the
precious metals If the metallic stand ard is supported either
by a metall ic circulation or by a substantial metallic reserve
early warning o f inatio n is given by withdrawals for export
The actual depreciation o f the monetary unit does not begin
till the metalli c currency and reserve are exhausted But to
-
CO N CLU SION
37
g a i n th e full
94
C U RR E N CY AN D CRED IT
37 2
S ee hi s
Purchas i n g P ower of M on ey
C O N C LU S I O N
I
37 3
_ _
'
'
C U RR E N C Y AND CRED IT
37 4
'
C ON CLU SI O N
37 5
CURRENCY AN D CREDIT
37 6
C O NCLUSION
37 7
Th e
/
/
C U RR E N C Y AN D CR ED IT
37 8
C ON C LU S I ON
37 9
ven i e nt
C U RR E N C Y AND CRE D IT
33 0
"
I N DE X
AB SO RP TI O N
Argenti na
of
gol d
as curre ncy after th e W ar , 35 8 9
by
erm any i n 1 8 7 2 3 . 3 1 1
cceptance , a cceptor, s ee
i ll s of E x
ch an ge
ccepti n g h ou s es , 1 05 , 2 1 3 ; at a nan
ci al centr e , 1 5 5
c co mm o d ati o n bi ll s , 1 95
-
by ,
35 5
3 65 7
u ni t o f, s ee
dvances , ban
So
1 8 2 ! 2 95
7 4:
4:
me n t ,
Advances
M onetary un t
k 7 98 9 1 94 ; to Govern A
,
2 08 , 2 1 9- 2 2 .
B k
by Cen tral
an
i a a cri si s , 1 5 2 3 , 1 5 8
i n war ti m e , 22 0
dvances by an of En gl and
apol eoni c
to
overnm e n t d uri n g th e
ars , 2 7 2 , 2 7 7 8
to
ov er nm ent d uri n g t h e W ar o f
-
B k
W
G
1 9 1 4 1 9 , 2 20.
-
to
6 7,
25
25
8 9
-
A
A
B k
l Argm t d e P ari s , 2 46
e ff ect of , on
rench co i nage , 300 1
s p ecul at i on i n , 24 6 , 2 5 4
total i s sue o f, 25 2
s si gn m ent of debts , 4 , 99 , 1 00 , 1 8 6 ,
37 6
us tr al i an gold di scover i es , I 7 5 , 30 7
u n gary
u str i a
cri si s of 1 8 7 3 , 3 1 2 , 3 2 3
curre n cy , effect of war s of 1 8 5 9 , 1 86 4 ,
an d 1 8 6 6 on , 3 2 2 3
d evel o m ent o f, after 1 86 7 , 3 1 1
tardard L aw , 1 8 9 2 , 3 2 5
ol d
loan to , i n 1 7 95 , 25 6 , 2 5 9
pap er i s su e of 1 8 1 1 , 32 1 2
s i l v er, s uspensi on of free co i n age of,
3 23 4
s p ecl e
payments
a ttem pted , 1 8 1 6 , 2 7 4 , 3 2 2
re su m ed , 3 22
us e o f gol d exchan ge s tan d ard by ,
1 2 0.
France 1 7 92 2 3 6
us tr i an N ati onal B ank 3 2 2
H un gari an Bank ad ances
u st o
to Dual G ov ernm e ts 2 2 0
W ar
w i th
by ,
7 5 81 ,
-
A
A
A
26 1
5 4,
d uri ng cr i s i s of 1 7 93 , 2 5 6
d uri n g cri s i s of 1 8 1 1 , 2 7 2
g ad i r cr i s i s , 1 9 1 1 , 2 1 9
gri cul tur al prod ucts
cred i t r equ i rem en ts of d e al ers i n , 1 2 3
effec t of a cri s i s o n , 1 3 8 (s ee a l s o
arves t ,
am i ne)
m eri ca, s ee ni ted tates
m eri ca, ati n
paper m o n ey current i n , 344
s i lver pro d ucti o n o f, 3 05
S pecu l ati ve trad e w i th , i n 1 8 1 0 , 2 7 1 ,
35 3
meri can s , pap er money i nvented by ,
3 05
mi ens , Tr eaty of, 2 7 0
m s ter dam
an
o f, 1 7 8 , 1 92 , 20 1 , 2 88
exchan ges o n , befo re an d after recoi n
a ge o f 1 69 6 , 2 9 2 , 2 98
as nanc i al centr e, 2 6 7 , 2 9 1 (s ee a l so
o l l and )
ntw er
p
exch an ges on , duri ng Tudo r d ebase
m ent , 2 8 4, 2 8 7
as nanci al centre, 2 84
23 3
1 7 6,
0 f, 3
money
1 20
As si gnats French
A
Accoun t
i n , l ead s up to
ari n g
c r i s i s , 1 8 90, 3 1 6 1 7
u ti li s ati o n o f gold exchan ge s tand ard
s p ecu l ati o n
B AL AN C E
of
i m ports , go,
2 2 5 9 2 7 9: 3 1 0i 3 1 2 )
i n de b tedness , 5 9 . 6 0, 7 0
p aym ents , 86
exports and
1 1 4,
1 38
3 1 64
41 ,
7
Bal ances
ave rage ,
47 8
-
ch an ges
i n,
rel ati on of
i ncome , 41
co n s um ers , 41
d i sch arge of, 5 3
to ch an ge i n
C U RR E N C Y A N D CREDI T
38 2
Banking sy stem of
Balancescont
economised by temporary borrowing
England 7 9 8 1 1 9 7 2 20
Europe 8 3 1 99 2 2 0
3 7 40 1 8 7 207 2 9 1 2 3 7 8 3 7 9
U nited S tates 7 8 9 8 5 1 89 1 98 9
e ffect f war on 2 7
6
Government 2 7
2 04 5 3 1 5
loss o f interest on 3 7 4 1 1 1 8 7 Bank
f Amsterdam 1 7 8
2 7
9 2 2 01 2 8 8
A ustrian N ational 3 2 2
B alk n W ars of 9 2 1 3 2 1 5
Aus tro H ungar ian 3 2 3
Bank
advances e A dvances
Bank f England
advances by to Government 220
assets 7 9 3 8
1 92 5 ;
local distribution o f ( e l o
25 6 7 2 5 8 9 2 7 2 2 7 7 8
and I ndian reserves 2 2
Gold exchange standard) 1 6
as the Bankers Bank 8 1 1 97 220
1 16 17
15 5 6 16
229
capital 3 8 1 3 2 1 8 7 1 93
Bank Charter A ct o f 1 844 7 8 81
credit d i e t from money 5
95 6 1 6
3 66
failures 1 3 3
Banking D epartment 7 8 9
9 6 7 2 0 2 02 2 2 3
investments 1 8 7 93 4 2 1 9
Baring crisis measures during 3 1 7
borrowing from 1 98 2 2
notes 4 3
96
distinction of from paper money
Conti nental credits in favour of in
.
0,
0,
a s
0,
'
0,
90
n
81 , 1 1 7 ,
, 5 1 , 1 2 8, 1 98 ;
,
1 25 , 1 49 5 0 , 1 9 8
8 , 48 , 5 0 , 1 5 8 ,
, 2 2 , 2 8 , 30 , 3 7
1 6 8 , 18 7 , 1 9 7
of, 8 1 , 1 9 7 , 22 0
of, 2 7 , 48 ,
49 9 1 96 37 7
of f
, 1 18 19
n
a
(see al so
)
,
5 0, 5 2 , 7 8 , 1 5 6 , 1 7 8 ,
.
Lo don
30
rate
1 8 6 , 1 89
0 1
er n
se
se
1 8 39 , 1
5 8,
161.
1 60, 2 29
I ssue D epartment
O tes v
13v
78 9
-
25 5
7 3!
reserv es
restriction
1 81 9. I
English system
xed proportion system
inclusion
oreign bills in
Gold excha ge stand rd
-
Bank Central
,
27 4
1 7 97
9 . 2 3 3 4. 2 5 5 7 8 .
-
cash p ayments by in
of
1 6 96 , 2 9 7
1 26 . 1 5
3.
suspension
B ank of
France
cash payments
of
7 8 . 82 .
157
(m)
233
2 7 3.
H amburg 1 7 8 1 92 2 1 2 5 7 2 88
advances by 1 5 3 1 5 8 220
Pru s sia 8 1
borrowing by 5 1
V enice 2 88
reserve of foreign bills held by Banks
118 9
1
bills drawn on 1 00
1 03
r esponsibility of for a credit expan
condence in 1 03 4 1 96 26 c
sion 1 30 2 02
country
in En gland in eighteenth
Banker
century 2 5 5 2 7 3 3 00
creates purchasing power 1 7 1 9 1
1 17
Exchange 5 8 98
2 1 9 37 6
of issue European 8 1
d e ned as a dealer in debts 4 6 1 4
payment of cash into 20 3 7 1 90 1
1 85 6
runs on 1 92
demand obligation s of 2 2 48 99
s a i n gS 2 2 3 5
3 7 I 93 4
1 86 7
1 91 2
solvency of 4 1 5 1 3 3 1 93 7
functions o f in tr ade 4 1 9 7 3 7 6
S tate 5 0
Baring crisis of 1 890 1 41 1 5 0 1 5 8
37 8 9
obligation of to supply gold at a
317
xed price 1 7 1 6 7 z oo 1 3 6 8 Baring Si r Francis 2 60
relation of to customers 9 1 8 2 3 4 Barter 1
1 95 6
B i ens na ti onaux during French R evo
99
as underwr iter or company promoter
l ut i o
2 3 4 2 45 2 5 4
Bill brokers 1 97
I 95
1 97
'
n,
I N D EX
38 3
Bills of Exchange 9 8 1 06 1 5 2
Capit alcon t
acceptance of 1 00 1 5 2
o f merchants
88
35
acceptor of the principal debtor 1 05
scar city of 1 9 3 48
acceptor of dif culties of in a crisis Carrying trade 6 1 7 0
15 2
Cash
l o Money
discounted by Bank of England at distribution of stock of 2 1 3 7 8
outbreak o f W ar in 1 9 4 2 2
in hands of the p ublic cannot be
di scounting o f 1
1 03 1 04 1 1 2 3
arbitrarily altered 3 8 49 1 7 8
15 2 15 5 6
85
interchangeability o f with credit
domestic 9 8
through the banks 3 8 48 1 6 8 9
drawer o f 1 5
17 2
drawn on banks 1 1 1 03 ; on a latent demand fo 2 3 2 8 8 9
nan cial centre 1 2 3 1 5 5 ; on payment of into bank s
37
90
L ondon 1 6 2 1 2
payments suspension f
S us pen
endorsers o f 1 00 1 5 1 5 2 1 92
sion o f payments
traders needs fo 2
foreign 1 01
I ndian 2 2 3 32 3 3 4 3 41 2
Castlere agh 2 7 8 3 6 5 3 68
origin f 1 2
Central Bank
Bank
place o f payment of 1 01 2 1 5 5 6
ti
t
gold 7 5 6 97
rediscount of 8 3 1 93 1 96 99 2 4 Chamberlayne S ir Thomas 2 84 5
use of as currency 1 92
Charles II 2 9 1
Bimetallism 7 4 3 4 3 7 2 ; in France Che q ues
little used on European Continent 5
I74 5
I 7 9 2 7 4 2 99 3 3 3 07
B irmingham and i n ati o ni m 3 6 6
not drawn on time deposit s 1 9 2
Blockade N apoleon s Continenta l 26 7
used to paywages in crisis f 1 8 93 3 9
China 7 2 7 8 7 9 8 2 2 3 44
27 1 35 3
B orrowing
Loan s A dvances
Circula tion
Borrowi ng country crisis in 45
drain of money into 2 2 2 2 3 2 8
07
Bourse 91 ; Paris during the Revolu
38 89 96
5 6 3
37 7
rapidity o f 46 8 3 7 9 8
tion 2 47 8 2 5 2 6 2
British
return of money from 3 8 6 2 3 1 2 6
Credit functions o f i n War 2 2
37 7
Classical doctrine of currency
2 95
22 4 2 2 8 9 2 9
7 18
Currency notes 3 1 8 0 1 6 0 2 9 2 32
3 6 4 36 6 3 6 9
Emp ire gold production 2 2 4
Clearing H ouse 5 6 6 5 2 9 6 204
international
6
Bryan W
5 4 6 ; 0f
36 9 7 0
32
Bullion
N ew Y ork 7 9
Clipping f coins 1 7 3 2 8 2 8 9 9
Committee o f 1 8 224 5 2 7 6
dealings of the L ondon Goldsmiths Coinage A ct
-
see a s
01
1.
00
r,
r,
er
0,
0,
12
0,
0,
10
ia,
289
1 7 97
1 8 1 9 , 269
181 6, 1 7
9 0.
1 8 7 0,
1 87
10
0,
1 0,
0.
0,
1.
s ec
see
see
ca es ,
1.
0.
'
2 0,
7 , 302 4
3 03
-
( U nited
S tates)
3 14
pri ce o f in 7 95 2 6 3
Coinage
R evolu tionary laws as to dealings in
debasement 1 7 3 8 8 3 2 8 3 2 88
during French R evolution 2 44
2 44
20
173
free 7
7
79
C ALIF O RNIAN gold discoveries 1 7 5 307
fr ee o f gold suspended i n certa i n
countries durin g the War 23 0
Call money 1 46 1 9 7 8 3 1 8
Calonne 2 5 7 3
3 4 5 ; free o f i lver suspended :
Cambon 2 4 2 4 2
in En gland 3 1 ; i n France 7 5
314 ;
Canning 3 6 5 6 3 6 8
3 3 ; i n U n i ted S tates
in A ustr i a H ungary, 3 2 3 4 ; n
Capital
Russi a 3 2 7 ; i n I nd i a 3 9 3 0
8 7 1 93
o f Banks 3 8
32
imper fections i n 7 3 8 2 2 8
demand f 9 94
double meaning f 9 3 48
in Middle A ges 2 8
nature and purpose of 1 7 1 7 1
expenditure by Government 2 07 8
price of gold 7 4 8 8 1 7 4
expenditure nancing of 9 9 09
A
ustr
i
a
H
ungary
25
3
:
0
2
9
94 5 3 4
9
4
{
i n England 3 02
x ed 9 9 1 5 9 2 2 8 348 9
market see I n v estment market
in France 7 4 1 7 4
1
0,
1,
0.
or ,
1,
10
1, 1
0.
0.
1,
00 .
C U RR E N C Y A N D C R EDI T
33 4
Coinagecont
reform attempted in 1 5 5 2 2 84
o f Eli abeth in 1 5 6 0 2 8 7 8
o f 1 6 96 , 2 9 6 - 7
369
7 7 4 , 3 00
o f 1 8 1 6 , 1 7 7 , 3 02 4
of
, 1 2 1 , 1 7 2 , 3 3 0, 33 1 3
1
1 7 1 2, 1 7 5 ,
,
, 7 2, 1 2 ,
I 7 7 . 2 8 6 7 . ao r s. 3 0 8
1 33 , 1 5 2 3 , 1 9 4
, 99 ,
5 . I 97
of
, 2 2 8 , 2 95
, 131 5
1 7 93 4,
of
f
,
2 3 8 , 2 40, 2 6 1
di
f
6 8 , 6 9 , 9 0, 1 0 7 , 1 39
n t
,
9,
1 68
rupees
Coins overvalued
1 19
s ee
I 67
in Banks 9 6
in currency 7 8
C on dence
1 03
17
2,
e ect
e ect
e ect
e ect
relation
10
relation
o f,
2 07
surplus
available
e S avings
Consumers outlay
se
for
e ect
41
investment
6 6 . 87 . 95 .
o f w ar
22,
43 ,
relation
of,
5_ 9 1 6 4 5
o f,
-
relati on
'
2 07
to Foreign Exchanges
1
to Government nance
0.
3 47 8 . 3 5 0 2
fo r
of th e
7 4 5 . 88 . 8 9 . 9 6 .
of a
1 07 2 6
remedy
tion
tendency
crisis
,
3 5 3'
27
45,
-
48 5 2 ,
-
creation of
1 07 2 6 . :
-
30
credit system to
to cause nanci al
of,
1 3o
a un versal
control of (
creation
in ation or deprecia
monetary unit 2 3
1 35
1,
1 62,
1 48 ,
8 9 , 9 7 , 1 3 0,
see a l so
8 8, 1 7 8 , 1 82
,
1 36 .
I nterest rate
,
of
30 .
I 9 1 . 3 7 6 . 3 80
o f, i n
45
16 9
war time
-
21 1
21 5
361 2
2 1 8 1 9, 2 2 1 2
7 0.
66
1 1 0 1 8,
sensitiveness
1 08
n,
41
s ee
effect
nance o 2 2 2 3 2 2 7
and new issues 95 1 42
reckoned by each count y in i ts own
currency 5 9
relation f to consumers income 9
o
s ee
credit expansion on
of
10
88 ,
credit contraction on
1 0, 1 1 4
so:
21 2 ,
1 0 , 1 1 4.
e ff ect
of,
9 , 2 9 1 , 295
ff
of, on
, 1 08
35 2
d e n it i on
ff
of
to Government nance
o f,
prices
Prices
production 8 9 1 1 1 4
prot s
Prots
traders balances 1 1
wages Wages
contraction
after the War in ation 347
at nancial centre 1 2 1 4
methods f 2 3 4 1 7 2 6 25 8
contraction o f credit on 9
ailure f harvest on 6 2
oreign loan on 6 4 5
war nance on 2 2 3 2 2 7
o f to creation o f credit 9
41 4
1 30 ,
contraction e ect
consumers outlay
employment 1 0 1 25
f oreign exchanges 7 5
Consumers income
41
2 2 4, 2 2 8
o f,
d e n i t i o n
ff
of
ff
of f
ff
of f
ff
of
37 1
7 3 85 ,
37 6
4, 2 60 ;
1 1
1 49 5 0 , 1 5 6 ,
,
,
1 5 9 . 2 8 3 4 . s 8 s. 2 86 7 . 3 5 5 . 3 7 0
,
367
223 .
o
1 06 , 1 1 6
1 8 2 , 2 00- 1
2 23
non transportable 6 9
prices f
Prices
sensitive 3 8 40
tran s portable 69
Commodity use of as money
5 7 , 6 3 , 7 4,
Commo ties
oreig rade
1 67
7,
Collateral security
1 7 2 , 1 92 2 0 1
9,
"
01 1
15 1 2.
-
of
paper
I N DE X
Credi t
Cri se s nanci al
cont
mea s ure s to be taken in 1 5 1 6 2
at outbreak of W 2 1 1
policy of Bank Char ter A ct reg ard
c ont.
95
ar ,
43 , 66 , 8 7 ,
I I4"
employment 2 1 1 26
fore n exchange s 66
,
ig7
7 4 5 , 90, 95
-
37 3
1 95
i n,
after th e W ar 35 0 36 2
at outbreak o f W ar 209 2 1 1
responsibility of Centr al B ank for
,
6,
of
1 5 2, 1 5
see
1.
s ee
i nves tm ent 9 1 5
p rices
Prices
prots
Prot s
value of gold 1 6 7
"1 g!
38 5
93 i 1 2 6 ! 23 7 9 2 5 5 '2 6 4
1 7 9 7 , 1 26 , 2 5 8 6 5 , 3 0 1
1 7 99 , 26 6 , 2 7 0
1 3 0, 2 0 2 .
I7
tendencies to
3 62
transmission of fr om country to
country 8 6 97 1 30
in ation o f ee I n ation
,
1 24 . 1 2 7
1 7 0.
37 5
i
of,
w
, 3 8 , 48 , 1 6 8 9 ,
for , 2 7 , 8 9 , 1 07
1 s5
2 29
3 7 s: 4 8 1 8 9
, 2 1 6 , 33 ,
9 1 , 1 47 , 1 5 0,
33 8
1 9 1 4 , 80, 1 60, 2 1 2 1 4,
urr e n cy , see M
,
15
3,
6 , 1 5 8 9 , 1 96 7
-
34 1 .
1 60.
8 0,
z oo 1 ,
2 2 4,
204 ,
2 21
1 95
8,
15
1 907 ,
1 7 0.
8, 31 7
204, 3 1 8 1 9
1 8 9 3 , 1 5 0,
2 04
1 8 90 , 1 4 1 , 1 5 0, 1 5
nature of 7 2 2 40 1 69
ori gi nates in producti on and i s
ti ngui s h d i n consump ti on
new ,
1 88 4 , 1 47
1 3 0.
15 2
48 ,
18
159
5 0,
.
5 6:
ithout money
22 3
movements periodici o f 1 2 5 6 3 7 3
37 6 9 ; world w i e cha racter
uses
of
35 3'
60
1 8 3 6 9 , 1 48 9 , 1 5 8 , 1 6 1
1 8 47 , 8 0
1 8 5 7 , 8 0, 1 5 0
1 8 6 6 , 8 0, 1 49, 1 95 , 3 1 0
1 8 4 , 2 04 , 3 1 2 , 3 5 3
1 87 3 , 1 6 1
1 7 2.
3 9 9
and
1 82 5
27 1 .
1 8 1 8 , 2 7 4.
ith cash
-
1 8 1 4 1 2 7 31
86 ! 8 9 1 96 s
1 3 1 4!
i nterchangeabil ty
t hrough banks
laten t demand
8 m ean
0f paymen t
'
1 81 1
0ft
2 29 ,
3 1 , 8 0,
1 6 0,
2 3 2.
10
a s
'
,
,
0,
er
C U R RE N C Y AN D C R E D I T
38 6
D ebtsont
Englandont
cancellation of against one another
rela tive freedom of from coinage de
SS
basements 2 8 0
4
conti nuity o f 8 2 3
English
dealer in 4 6 4 1 8 5 6
177
25 5
coinage
26 1
2 80 8
29
economic S ignicance f 4 5 1 8 2
2 92 8
3 00 4
paper money ( e l o Currency notes
3 85
i n d i fferent places not homogeneous
Bank of England) 7 3
system o f bank reserves 8
57
97
e ffect of change of standard on 8 3
2 20
Exchange bills of e Bills of exchange
3 5 425
means f d ischarg ing e Payment
medium o f 1 5
means of
rate of proport i onal to purchasing
origin f in production 4 8 6 3 7 6
power or monetary unit 5 9 6 7
relation f to prices 5 8 2 2 5 0
rate of favourable and un favourable
un i t f measurement of 2 3 5 8 2
59
Exchanges foreign e Foreign ex
3 35 5
D e at i on (
c h anges
l o Cred i t contract i on
Exche quer stop of the by Charles II
O f)
D emand obl igat ions of Bankers 22 48
2 91
Exche q uer bills advanced to embar
99 1 86 7
91 2
D enmar k 2 3 1 3 8 3 45
s d traders
25 6
27 2
D enominations of coin and paper Expansion of credit
C redit
I76
Expenditure
Consumers O utlay
money
96
59 6
Export specie point 6 3 6 6 7 4
2 65
25 5
D eposi ts
B anker D emand obliga
tions I nterest
D epreciation of the monetary unit 1 3 FA M IN E e ff ect of on currency in I ndia
1 7
66 7 5
29
33 6 7
33 8 9 ; on currency in
R ussia 3 2 7
1 83 4
2 23
2 80
33 8
3 47 6 3
Dep es sw o f trade 1
1 47
Farmers cre d it re q uirements of 1 23
2
26
Favourable and unfavourable exchanges
35 6 35
D irectoi re 2 3 9 2 47 5 25 2 3
59
D iscount H ouses 05 5 5 6 8 7 2 8 Federal R eserv e A ct 1 9 1 3 ( U nited
S tates) 7 8 9 8 5 98 9 2 4 5
D iscount rate of in London Market
Final expendi ture 4
1 98
D iscoun ing o f Bills 1
Fi nan ce meaning of 2 7 2 2 7 8
04
3
2 3
8 5 ; at a Finance bills 1 95
52
55 6
Finance companies 42 1 87
nancial centre 4 5 5 6
1 10 14
1 4 6
D ollar American origi n of 3 5 3 6 Financial centres
1 20 1 5 4 6
D omestic Bills 98
1 7 18
21 2
Crises
D rain of money into circulation 2 2 2 Financial cr i ses
Financing o f
23
28
3 8 8 9 96 1 7
capital expenditure 9 9 1 09 1 42
3
37 7
19
1 9 425
D rawer of a B i ll 05
1 3 49
i mports in war t i me 2 2 7 22 8 9 2 3 1
D utch Eas t I ndies 1 2 0
1
14
international trade
6
mobilisation 1 6 0 209 2 1 4
EDWA RD V I debasement of the coinage
86 3 7 6
production 7
28 3
Fisher Prof I rving 47
E gypt 1 23
37 2
Capital
Eli abeth ecom ag of 1 5 6 2 8 7 8 Fixed cap ital
Fixed interest bearing securities 93
369
I 43 3 5
Employment e ffect of credit contrae
7
tion on
1 25 6 ;
ti ct o f Fixed duc i ary i ssue of paper money
C redit expansion on 2 1
25 6
Fi xed d uc y i ssue
Endorsement of a bill 5 1 1
1 05
i n A ustria H ungary 3 2 3
15 2
1 92
in England 7 8 8 1
England
in Germany 8 1 2
as a nancial cent e 1 03 2 1 2 3 6 7
in I ndia 333 343
potential gold reserves of in 9 1 4 2 2 4
c
s ea s
1,
se
se
0,
or
se
a s
s ee
r as e
0i
see
1 1
-
0,
01 ,
1,
0,
s ee
1 0, 1
1 01
1 0,
00,
rar
'
09
s ee
0,
0,
10
10
1.
11
s ee
s ee
I N DEX
38 7
1,
21
1.
1 1.
1, 1
6.
of
27 1 . 27
3 5 . 3 1 0. 3 1 2
of
, 66 , 7 4 5 ,
9 0. 95
of
credit
an expansion
87
f
f
se
0,
0.
G E M AN East Africa 1 2
Germany
accumulates gold reserve after A gadir
crisis 2 9
adoption o f gold standard by 1 7 9
3 07 8 . 3 1 1
-
3 69
ar,
0.
o ,
10
a so
see
r,
s ee
s ee
00 .
or
or ,
0,
see
or,
20
0,
0.
0.
00 ,
r,
25
"
C U RR EN C Y AN D C R E D I T
38 8
Goldcont
as intern ational currency
Greece 1 2 0
Greenbacks in the A merican Ci vi l War
2 , 1 80,
37 0
63
1 1 6,
1 5 4,
3 08 9 . 3 7 5
232 .
Gresham S ir Thomas 2 8 5 6
movements
movements and control of credit 8 7 Gresham s Law 1 7 3 6 2 8 2 8 5 3 5
8
I O7
Guineas
movem ents
end f 3 3
during cri es 3 1 1 3 3 4 3 6 7
rst issue o f 2 9
re quired for payments below 5 5 till
15 9
39
and foreign loans 6 5
I 7 97
25 5
n d rate
f interest
value of 7 6 1 7 8 2 92 2 97 2 98
6 154
in war time 2 23 4
price of becomes variable when gold H AM B U G
annexed by N apoleon 2 7
payments are suspended 7 4 5
88 1 5 4 1 5 6
Bank of 7 8 9 2 1 2 5 7 2 88
ratio of t silver
R atio
exchange on 5 7 2 6 4 2 6 6 7 2 69
reserves 7 2 8 5
27 3
27
114
reserves
H arvest and foreign exchanges 6 1 9 0
after th War 3 5 9
; of U nited S tates
4
4
e ffect f internal and external
3 2 13 3 8
drain on 7
H enry V III 2 8 2
e ffect o f international gold move H erschell Committee on I ndian Cur
ments on 8 7 8
reney 3 29
H oarding 7 6 7 3 4 7 5 294 34
exist to be used 8
I ndian 2 2 33 1 4 3 41
H olland (
l
A msterdam ) a an
i l centre in seventeenth and
large needed by a country which
is not a nancial centre 8
eighteenth centuries 3 29
annexed by N a p oleon 7
use o f in crisis 1 3 6 39
in war ti m e 2 2 3
H orner Francis Chairman f the Bul
lion Committee 8 2 7 6
standard
H ungary
A ustria H ungary
adoption o f 7 9 2 99 343
conditions o f maintenance of 7 4
I N C O M E s Consumers income
t f W ar on 3 4 4 6
I nconverti ble paper money 3 1 3 62
future f 3 5 4 3 5 9 6 5
and foreign exchange 6 3 6 6 8 6 9 I ndex numbers f prices 6 7 8 2 6 7 8
general prevalence f 7 2 8 9 1 7 2
2 7 6 365 3 7
37 4 5
I nd ia
179 8
3 44 3 7
coinage of 7 3 1 2 1 1 7 2 33 33 1 3
loyalty f London market t 1 5 6
effect upon f demand for j ute in
3 67
na ure f 1 7 3
67 8
17
1 9 6 7 91
3
employment of gold exchange stand
8
2
1 367 8
d by 20 2 3 3 2 5 34 2
supply 2 9 1 7 5 2 2 4 2 2 9 3 7 s 3 7 1
peasant nation 2 3
value or purchasi g power f 33 35
67
remittances 1 1 2 3 2 9 33 2 334
15 1
I72
27 6
35 4 3 5 9
reserves 2 1 1 2 2 33 1 4 3 41
37 3
Goldsmiths London in seventeenth I n d i n currency c ondi tions 3 35 41
currency and the W 3 4 3
century 2 89 9 2 2 97
Governme t
I ndustrial shar es 93
assistance i n a c isis 1 5 3 2 1 2 2 2 I n ation 7 1 84 5 1 1 4 1 1 6 1 1 8 1 27 9
-
0,
'
0.
11
s ee
0 1
-
2,
1 1 0,
1.
10
12
11
o,
0 2
-
0,
00
2.
'
1-
3 1 4 ! 3 47
2 04 1
ar ,
27 2
0,
6,
i
ar
25
s,
ee
'
s ee
1 0,
ec
10
c a
s ee a s o
0.
0 1
borrow ng 9 93 7 8
3 65
nance 2 7 relation of to de ation I nstabi lity f credit e Credit
I nsurance f bu lli on and sp ecie 1 80
35 2
guarantee f bills discounted by B ank
3 1 3 2 6 7 3 45
o f England at outbr eak
f War I nter es t
in 1 9 1 4 22 1
l oss of on i dle balan ces 37 40 n
note issue 49 2 3 2
1 88 2 1 7
regulation f b nki ng 5 2 02 5
payment of on curr ent accounts 6
regulation of subsidi ary coinage 1 7 7
90
,
20
2,
se
0,
o,
I ND E X
I nteres tont
r ate o f 2 6 43 5 0 1 8 1
deterrent 30 1 0 7 8
c
215
1 1 4- 1 6 , 1 9 7
1 2 0, 1 2 8 , 1 5
3,
1 1 , 1 1 0,
1 1
2 4- 6 ,
6,
1 07 1 8 ,
1 26 , 1 9 2 ,
93,
5 . I 95
36 0
1 -2
35
94 5
3 46
32
5 30.
-
to manufacturers
2 07
347 8 ,
9,
1 15
7,
25
16,
21 4 1 5
-
1 09 ,
1 23 ,
1 31
1 35
376
to merchants
7 , 25 ,
21 6 . 37 6 . 37 8
1 09 ,
unicipal 9 2
N ecker s in 7 8 9 2 34 2 5 3
short period 3 7 1 87 8 ; as banking
as sets 5 1 8 7 8 1 92 3 7 8 3 8 0
tempo rar y f capi ta l enterprises 9
.
1 1 0-
orei gn
21 2,
2 09 ,
94 5 , 1 44 5 ,
for (s ee
-
demand
31 0 ;
10
as
0,
1 03 , 1 06 ,
0,
2 1 2, 22 1
2 45
25
J ohanno t
2 42 - 3 .
Jute demand
i n 1 9 06 7
for
91
Luxuri es
297
,
6,
KAF F IR boom , 1 47
Kemmerer Prof 47
Keyn es , Mr J M , 1 1 9
King , Lord 2 65
King s exchanger , 2 89
,
15
36
2 2 9.
in ei ghte n th century 25 5
loyalty o f to gold standard
3 4
36
J AC OB IN S 23 8 243
Jap an 2 2 1 5
Jevons 2 6 8
nanci al centr e
S avi ngs) 9 2 5 1 42
L ondon arket
I ss ue D epartment o f B ank of England
an d Baring crisis 3 1 7
eff ect o f outbreak o f War on in 1 91 4
78
a l so
3 41
Inves trn en ts , f
3 49
10
or
0,
s ee
92 , 93 ,
I nternational
1.
Government
1 93
24
2 3 9 , 2 48 , 2 5 2 .
regulation of credit by
17
1 1 97
I nterest bear i ng assets 3 8
1 2 4- 5
'
1 24
Li q uid assets 95 1 98
Lisbon 2 5 7
Li verpool Lord 2 97 300 30 3
Loans
at call 1 46 1 9 7 8 3 1 8
forced during French R evoluti on
,
33 9
1 37
91 ,
2 1 0, 240.
M ACL EO D H
285
D , 3 , 1 5 0,
Terr i tor i a ux i
i , 2 49 5 2
s sued under th e
L AND S public during French Revo l M nd a
D irecto re
ion : B i m m ti on x
Manu facturers loans to 7 2 5 09 1 23
L ate nt dem and s c Credi t Cas h
L ati n U nion 307
37 6
Law S ir E on the demand for rupees M gi n uns pent e U nspent margin
Ma k German depreciation o f 23 2
Market
L aw John 2 3 5 2 88
Forei gn Exchange 5 8
L egal t ender 3 4 1 7 3 1 1 7 1 1 85
I nvestment
I n v e stment
2
2 2 5 3 26 5
prices and wages 9
coin
M oney Coinage
rate o f interest 5 1 1 28 1 97 8
do not exi st in China 1 80 2 02
Markets I nternational 5 9
laws sometimes inoperative 1 7 6
M aximum R evolutionary L aw o f th e
l i mited 1 7 2 1 7 7 3 3 1 2
26 1
2 38 2 4
notes
Paper money
u
01
ar
s ee
es
00 ,
0
.
s ee
se
s ee
au
so
C U RR E N C Y A N D C R E D I T
39 0
Merchants
capital o f 35 88
effect of rate of interest on
1
8,
25
25
1 08 ,
Metalli c stand d
ar
7 9, 1 8 3 ,
3 s4 i
, 3 44
1 35
21 6,
17
31
2 , 1 67
2 01
7 2 3,
3 46 7 ,
2 80 ,
Mexi co
Middle A ges currency problems in
M i nt pr i ce
Coi nage pri ce
Mobilisation nancing o f 6 0 209
Monetary unit
adopti on f depreciated 2 8 0
s ee
21 4
2 84,
6 7i
3 47 6 3
49
I 83
1 17
2 80 1
2 23 1
49
1 29 ,
1 01
measures debts 2 3 5 1 8 2 3
measures prices and val ues
-
33 4,
-
1 8 1 -2
after depreciation
of,
'
35 9
1,
49 . 5 2 .
of a
( S ee a ls o
7 8 . 1 8 5 . 3 7 3 . 3 7 7 . 3 80
, 2 , 1 7 , 1 6 7 , 367
commodity as
Cash Paper money Gold
Circulation )
Moratorium legislation
Mortgages unsuitable as Bank A ssets
use
2 1 0.
1 94.
I 9&
23 2
9:
23 2
365 7
N AP O L EO N 2 5 3 2 7 1 2 7 2 2 7 3
N ation al creditor e ff ect of change of
stan dard on 2 95 3 04 3 1 3 1 4
35 7 9
N ational Banks of U nited S tates 1 89
3 46 s :
2 9 6 ' s:
1 82 - 3 .
2 7 3 's,
3 4 5 . 39 . 5 2 : 7 5
r es toration
commodity
7 4. I 7 3 .
73
1 68
cont inu i ty
dependence of upon credit
depreciation o f 1 3 6 6 7 5
58
17
6 . 3 04 . 3 5 6 9
o f, 1 0, 1 8 2 3
293
I5
7 2,
28
80 35 6
3
37 7
0.
1 88 ,
1 26 .
37 6 . 37 8
_
sometimes held to be
37 7 8
1 09 , 1 3 1 ,
25
1 1 4, 1 2 3 .
initiative of
loans to 7
oneyont
rapidity f circulation f 46 8 3 7 9 8
return of from circulation 3 8 6 2 3
legal tend r
e
s ee
Paper money
customary 2 02
dened
7
demand fo 2 1
.
O RES M E
2 85
O
,
30, 3 7 8 , 48 , 49 ,
I 6 8 . I 7 0. I 7 8 . I 8 9 .
2,
s e
v r
0.
"
see
0, 1
,
,
s ee
1,
see
ee
I ND EX
Paper money o t
concurrent circulation
c n
7 7,
of,
er
32 , 7 2 , 7 4
2 45 , 2 49 , 2 5 3
ll
fa
159
3,
60,
235
1 1 0, 1 2 4
1 2 9,
6 7
15
223
6 , 35 6
6,
365
o f,
,
-
Crises
s ee
8,
26 7
3 7 2 . 37 4 5
of, 5
o f to
, 5 ,
27 6,
8,
measurement
relation
debts 1 8 2 25
rise f during a credit expansion
4,
11
depreciat i on
3 4 5 . 43 4
o f,
-
0.
25
75
25
Prices
cont
wit h coin
det mined by the Quantity Theory
39 I
35 4
0.
2, 1
0.
0,
11
0,
'
0.
0.
0.
2.
1.
0.
s ee
0.
0, 1
3 1 5 , 324
2 5 7 , 2 69
24
37 6 8
of
1 42 ,
1 2 4- 6 . 1 43
6 . 93 .
Promissory notes 99
Promoter of capital enterprises
21
cr isis of 882
Exchange on
Payment
means of 3
2 5 0, 2 6 2
0.
9, 9 1 ,
15
7,
1 8 2 0,
-
1,
33 ,
r,
33 9 4
8 0, 2 7 8, 3 04 , 3 66 7 , 3 6 8 9
1 68,
367
1 7 2,
7 0,
0,
0.
1 23 4
0,
30
0,
Peel S ir R
Penin sular W ar 2 7 5 2 7 7
QU A N TITY theO Y 3 5 3 8 44 45 s 5 2
8
6S 7
37 9
Percev l 2 7 7
73
7 5 12
Periodicity of credit movements
Quarterly settlement in German m oney
market 8 2
Cr ed it
Philippine I slands 2 0
RAFFRO N 2 43
Pitt 25 6 2 5 8 9 2 6 3
Railway development in U nited S tates
Pocket money 2 2 1 3 7 1 6 8
Pound sterling 1 83 3 3 4 3 65 7 368 9
3 1 0 3 6 ; in Austria H ungary
Prices
31 1 12
adj ustment f to a change of stand R apidity of circul ation 46 48 37 9 80
R ate o f interest
I nterest
ard 2 8 2 88 2 9 5 2 96 3 5 6
R ate f exchange ee Fore i gn Ex
of commodities which cannot be m
changes
ported 6 9
-
1. I
o,
0,
0. 1
'
s ee
see
C U RR E N C Y AN D C R ED I T
39 2
17
S ecurity
4 , 2 6 7 9 , 3 00
-
3I 4
R ecoinage
S eignorage
of
6 0, 2 8 7 8 , 3 6 9
1 6 9 6 , 2 96 7
15
collateral
97
181 ,
2 86 ,
2 8 4,
2 82 ,
3,
300,
S hares
I 46 3 5 7
S hipbuilding
S hi pping
S hort term loan s s e L oans
S ilver
cost o f transporting 1 8 0
displacement o f by gold after 1 8 5 0
-
3 01 3
. 9 I 2 . 93 . I 43 .
, 1 09
, 61 , 7 o
15 2
1 33 ,
9 9,
1816, 1
7 7 , 3 02 4
of
-
R ediscount
2 04
Bills
83 ,
1 9 6 , 1 9 9,
1 93 ,
R eichsbank German 8 2
R eign f Terror 2 3 7 4 2 5 4 2 6
R eserve Cities and Central R eserve
Cities in U nited S tates 9 8
Reserves
Gold reserves Bank
serves
Restriction f cash payments in 7 9 7
Bank o f England
Resumption f cash payments i
A ustria H ungary in 8 2 0 32 2
England in 8 9 3 4
U nited S tates in 8 7 9 3 2 3 4
Retail dealer 8 2 3 7 6 9 1 8 7
R evolution effect of on currency
systems 2 06
2 33 5 4
Robespierre 2 4
Rubber boom f 9 1 47
Rupee 7 3 2 7 2 3 2 9 43
R ussia
advances by the I mperial ( State ) Bank
t
the Government 2
attempted return to specie payments
in 8 1 8 7 4
e ffect f war o f 8 7 6 8 on cu rency
1
0,
s ee
re
s ee
0,
0, 1
2 0.
of,
3 26
7 8,
17 6, 1
179
overvalued
of
7 2 . 1 5 7 . I 7 2 . 3 08
. 7 3 . I 7 9 . 28 1
of
enny
policy
P
U nited S tates
3 1 42
o f,
3697
0.
1 87 8
96 ,
37 2
0.
pr i ces
duri ng the Bank R st c
tion 2 6 9
relation f p rice o f to world credit
movements 3 4 1
standard in the Middle Ages 7 2 1 7 9
e
ri
280 1
ar
3 07
supply of 7 9 2 8 2 88 3 5
employmen t f gold exchange stand
ard by
use f as money 7 1 7 6 8 37 0
32 7 8
use of as money in China 7 2 1 7 9
exchanges unfavourable to at out
br ak o f W ar in 1 9 4 4
3 44
introduction f gold standard into S mall traders credit o f 99 1 9 7
S mith Adam 3
32 8
loans ra i sed abroad by fo war with S omerset D uke f debasement of th e
coinage by 2 8 2 3
Japan 4 5
new issue o f paper money in 1 8 3 9 S overeign the 3 3 4 3 3 1
S pain
3 26
3 44 3 4s
suspension of free coinage o f silver S p c p omt 6 3 6 6 7 4 1 1 5 1 2 1 2
8 1 22 4 2 5 7 3 45
in 3 2 7
S peculation 45 8 1 5 3 2 00 1
in A rgentine securities 3 1 6 1 7
S AV I N s
9 36
93 94 1 9 I 42
in p aper money 3 3 7 3 3 5 5
1 87
214
25 3
95
3 49
9
i n the assig ats 2 46 2 5 4
35
S avi ngs Banks 2 2 3 6 3 7 93 4
S peculative assets 9 4 1 5 2
S ecurities
S tate Bank 5
dealer in 2 6
S tandard f value
ef ect f high interest on 1 1 4
change of 8 3 2 7 9 343 3 46 5 9 36 9
effect of war on 2
requirements o f 1 3 3 7 4 5
xed interest bearing 9 3 43 3 5 7
the future 3 46 35 4
gilt edged 94 9 4
S tock Exchange I nvestment market
prices f 9 2 4 43
S tock manufacturing f 1 2 3
sales of in a crisis 1 42 5
S tock f money (
l o U nspent
l o I nvestments )
margin) 2 1 2 3 7 8 1 6 8 9
(S
o
1 20,
21
s,
01
ee a s
.
,
0.
or ,
see
s ee
0,
1, 1
0,
1 0.
0-
e re
s.
01 .
21
0,
a s
IN DE X
S tock of commod i ti e s
cont
S tates
U ni ted
8 , 42 3 , 7 0, 1 09 ,
2 1 5 1 6 , 2 2 3 , 3 49
-
39 3
.
1 4 8 , 2 1 0,
s,
e,
0,
1 89
86 ,
w
9 0, 3 6 7
E
-
T AXATIO N 207 2 1 4 2 3 2 3 47
U s ury l a s in n gland 25 5 6
Tel e graphic tran s fers 9 8 1 05
Temporary borrowi n g
S hort peri od
loans
VAL M Y b at tle of 2 3 6
Tooke Thoma s 268 g
V alue
Torres V edras 2 7 7
oi gold s e G old
Trade
of monetary unit see M on tary uni t
after the W ar 348 5 3 5 6 3 6 1 2
of paper mon y see Paper money
b alanc of g 1 1 4 1 3 8 4 1
re l ativity of 5 3 3 3 7 4
cycle s 1 2 4 6 37 3 3 7 6 9
s tandard of
e S tandard
H om and F oreign 1 1 1 1
V an si tta rt 2 7 7
International nancin g of (see a l s o V en i ce as a nanci a l centre 1 03 ; B ank
F inancial centr ) 1 3 6
of 2 88
Trad r
bal anc s 4 1 1 1 0 2 1 7
classes of 8 1 1 0 1 1
WAG E earner 2 1 36 36 1 2
n eds of for ca s h 2
Wa g s
12
tu rno r 3 7 4 1 47
e ect of cr dit contraction on
Tran saction vol um of 47
1 25
Trea ury B ills B ri ti h 2 1 7
effect of cr dit expans i on on 2 1 3 2 8
Tre aty P orts of C hina premium on
1 25 6
bank notes at 1 7 8
e ect of in ation on 2 5 0 3 6 1 2
medi eval 7 2
U uns aw nrm as 93 1 6 1 09 1 42 1 5 2
payment of 2 0 37 5 6 7 2 I 5 9 203
I 8 7 1 94 5
U nemployment 3 6 1 6 3 5 6 3 62 3 7 7 W ar
U nfavourable exchan g 5 9
Amer i can C ivi l 2 32 309 1 0 3 1 3 1 4
of American In depend nce 3 5
U n i ted S tates
bank in g ys tem of 7 8 9 8 5 1 89
C r i mean 3 2 2
2 1 222 5
effects of 1 2 6
1 9 8 9 2 04 5 3 1 5 1 6
B r i ti h purch as e s in duri n g th e W ar
nanc e 1 2 7 2 06 3 2
in ati on 2 1 8 3 2 347
228 9
B ri ti h W ar L oan s in 2 29
L oan s s L oan s
2 1 4 15
cr i i s of
Rus s o J apan
1 87 3 1 61
Ru s s o Turkish 3 2 6
1 8 4 2 04 3 1 2
taxation 1 4
1 89 3 1 5 0 204 3 1 8 9
,
see
o,
0,
se
e s
s,
0.
'
ve
s,
'
e,
ee
1 5 0,
9 1 , I 47 ,
2,
15
1 95
2 04,
of r 6 8 9
97 , 2 9 1
1 9 1 4 1 9 , 8 0,
-
1 26 1 6 0 2 1 2 1 4 2 1 7
of
2 2 4 22 8 3 2 2 33 3 4 1 3
22
:
W ar s of Fr nch Revolution and Empi re
0 1
309- ro, 3
7 8 9, 8 5 ,
1 91 3 ,
1 2 6 . 2 33
7 8.
9.
20
35 3
W ater l oo 2 7 3
W eal th rel ation of credi t to
G ol d S tand
Act of 1 900 3 20
harves ts effect s of 1 4 1 3 1 2 13 3 1 8 Wh oles al e pri ces 43 7 0 ; deal er
M erchant
i mportation of gold into durin g the
W orn coin 1 7 3 1 7 7 280
War 229
1 98
8,
es e ,
'
so: