Charles Francis Bastable

“ With the growth of industry and commerce and the expansion of the system of contracts, covering a distant future, the evil effects of a shifting standard of value attract attention, and lead to the suggestion of ingenious devices to correct fluctuations. These belong to the later history of money and currency movements. It is enough for the ordinary purposes of money that it shall not alter within short periods, which is a characteristic of the more valuable metals, and particularly of silver and gold, while in contrast such an article as corn changes considerably in value from year to year. ”

“ The supply of money is the quantity of it which people are wanting to lay out, i.e. all the money in circulation at the time. Demand, in like manner, means the quantity of a commodity desired, or, according to another mode of expression, the amount of purchasing power offered for it. Taking the latter as the more convenient for the case of money, we can say that the demand for it consists in all goods offered for sale. The position of money as the medium of exchange introduces a further novel feature; for the market in its case is world-wide and the demand is unceasing ”

“ By prescribing the standard and amount of penalties, by their power of selecting the substances to be used as money, and by their frequent interferences with existing currencies, the governments of the world have guided—as well as very often disturbed—the normal course of development. What Aristotle regarded as the “unnatural” character of money is mainly attributable to state intervention. But it is important to remember that the sphere of governmental action in respect to money is limited. A currency system is never an arbitrary creation ”

“ In earlier times it has been a common proceeding on the part of governments to restrict or stimulate both mining for the precious metals and the business of coining. At all times the working of gold and silver mines has been rather a hazardous speculation than a legitimate business. “When any person undertakes to work a new mine in Peru,” says Adam Smith, “he is universally looked upon as a man destined to bankruptcy and ruin, and is upon that account shunned and avoided by everybody. ”

“ It is only by building on the habits and customs that have become established that improvements in the monetary system can be effectively completed. Not only is this careful observance of the disposition of the mass of society expedient; there is still greater need for taking account of the methods and interests of those sections of the business world that deal specially with money. A currency change that was bitterly opposed by the banking interest would certainly be difficult to introduce in either England or the United States ”

“ On a review of existing savage tribes and ancient races of more or less civilization we are surprised at the great variety of objects which have been used to supply the need of a circulating medium. Skins, for instance, seem to be one of the earliest forms of money. They have been found among the Indians of Alaska performing this service, while accounts of leather money seem to show that their use was formerly more general. As the hunting stage gives place to the pastoral, and animals become domesticated, the animal itself, instead of its skin, becomes the principal form of currency. ”

“ States are the demanders of metal for monetary use, and by adjusting that demand they can powerfully influence the course of production, especially as the cost at which either gold or silver is obtained varies with the productiveness of the poorest mine in working. Thus by directing consumption, states are controlling production, and therefore—within limits—fixing the relative value of the two metals. ”

“ It is, therefore, possible to trace the normal growth and expansion of British finance as one of the aspects of the nation’s history.
The primitive financial institutions of England centre round the king’s household, or, in other words, the royal economy precedes the national one. Revenue dues collected by the king’s agents, rents, or rather returns of produce, from land, and special levies for emergencies form the elements of the royal income, which gradually acquired greater regularity and consistency. ”

“ The mere quantity of money is not the only element on the supply side. The varying circulation of the monetary units must be taken into account. Some coins do not make a single purchase in a year, while others change hands in transactions hundreds of times. By averaging, we may estimate the effect of the rapidity with which money does its work, or, to employ a technical term, the “efficiency of money.” Similarly, the amount of sales rather than the quantity of commodities is the determining element on the demand side. ”

“ Gladstone’s inheritance of doctrine from Peel “was to estimate expenditure liberally, to estimate revenue carefully, to make each year pay its own expenses, and to take care that your charge is not greater than your income.” This method of treatment requires that taxation shall be productive in yield, and that it shall be so elastic as to admit of expansion, a function specially assigned to the income-tax. It may also be said to involve due care in the treatment of the national resources. The reaction of ill-chosen taxes on industry is a hindrance to their productiveness and their growth. ”

“ Akin to the tax that has just been described, at least in its nature as a direct impost, is the poll or capitation tax. Financial pressure at the close of Edward III.’s reign (1377) led to the adoption of a tax of fourpence per head on all persons in the kingdom (mendicants and persons under fourteen years being excepted) . This “tallage of groats,” which seems to be derived by analogy from the hearth money for Peter’s pence, was followed by the graduated poll taxes of 1379 and 1380. ”

“ The slightest consideration of industrial organization shows that it is based on the division of employments; but the earliest economic writers saw plainly that division of employments was only possible through the agency of a medium of exchange. They recognized that the result of increasing specialization of labour was to establish a state of things in which each individual produced little or nothing for the direct satisfaction of his own wants, and had therefore to live by exchanging his product for the products of others. ”

“ As a feeder of the revenue the excise might be regarded as equal to the income-tax, but less to be relied on in times of depression. Valuable as were the reforms of the excise after 1820, they were insignificant as compared with the changes in the customs. The particular circumstances of English political life have led to perhaps undue emphasis being placed on this particular branch of financial development. ”

“ Thus the substitution of the “carucage” or plough tax for the “Danegeld” marks an advance towards direct taxation of land through its produce, and the introduction of “scutage” is not only further evidence of the same tendency, but also a step in the development of “money economy” in place of the earlier “natural economy” or system of payments in kind. The special levies or “tallages” imposed at times of need on the towns in the king’s demesne appear to have been a doubtful exercise of the royal prerogative, but scientifically they belong to the same class as the Danegeld and scutage. ”

“ Connected with the public debt is the foundation of the Bank of England (see Banks and Banking) , which more and more became the agent for dealing with the state revenue and expenditure; though the exchequer continued to exist until 1834 as a real, even if antiquated institution.
Thus it is clear that by the end of the 17th century the new influences which date from the Civil War had brought into being all the elements of the modern financial system. Expenditure, revenue, borrowing to meet deficiencies are all, in a sense, developed into their present-day form. ”

“ BIMETALLISM. The very general employment of both gold and silver for currency purposes (see Money) has given rise to serious practical difficulties which have in turn led to keen theoretical discussion as to the proper remedies to be employed. Though every arrangement under which two metals form the money of a region may be described as “bimetallism,” the term—as often happens in economics—has received a specialized meaning. ”

“ In fact, until the establishment of constitutional government the French people had to depend on popular violence to procure any temporary reform in their currency. Since the Revolution the course of development has been essentially orderly and regular. All through the time of the ancien régime silver was the principal money and the standard, as the use of the word “argent” as a synonym for money shows. Just as England got a gold currency by overvaluing gold, so did France get a silver one by overvaluing silver. ”

“ A country with a metallic circulation of £100,000,000 incurs a loss of the interest which that amount of capital would produce by investment, i.e. at 4% £4,000,000. The expense is amply justified by the services that a good currency renders; but, at the same time, it proves the desirability of any economies that do not detract from efficiency. The great economizing agency is the use of representative money and the various forms of credit, in which so much of the latest advances consist. ”

“ The selection of some particular article as the criterion makes the comparison of values easy. “The chosen commodity becomes a common denominator, or common measure of value in terms of which we estimate the value of all other goods,” and in this way money, which in its primary function renders exchange possible by acting as an intermediate term in each transfer, also makes exchanges easier by making them definite. Still another function of money comes into being with the progress of society. ”

“ The fact that money has to circulate amongst all classes of society makes it indispensable that it should be suited to the wants and even the prejudices of the users. Many curious instances of preferences for particular coins or special forms of paper money can be given. The Austrian Maria Theresa dollar of 1780 is a favourite on the African coasts and has been frequently reissued for use there. Reasons of convenience and of security combine with sentiment; as in the determined rejection of the U.S. “greenbacks” by the inhabitants of California during the inconvertibility of that currency. ”

“ The inherent simplicity, and, so to speak, “naturalness,” of the single standard is best realized by embodying it in gold, which is universally desired, of high cost and yet found in sufficient amount to discharge the money work of the standard. The verdict of history is appealed to as confirming the theoretic presumption, for gold has been gaining ground from century to century. ”

“ When it is remembered that in its origin money is only an instrument to facilitate exchange—we might even say to render it possible—it follows that from its earliest to its latest form the ruling influence is the need of society for the best mechanism of exchange. ”

“ Therefore, to quote the words of perhaps the ablest advocate of bimetallism, “The outcome of the prolonged controversy . . . appears to be that the commercial world will carry on its business principally and more and more on a gold basis, and that particular countries will endeavour in different ways to adjust their actual medium . . . to the gold standard” (Nicholson, Money and Monetary Problems, 6th ed.) ”

“ High value in small bulk gives the quality of portability, want of which has been a fatal obstacle to the continued use of many early forms of money. Skins, corn and tobacco were defective in this quality, and so were iron and copper. Sheep and oxen, though technically described as “self-moving,” are expensive to transport from place to place. That the material of money shall be the same throughout, so that one unit shall be equal in value to another, is a further desideratum, which is as decidedly lacking in cattle-currency as it is prominent in the metals. ”

“ In business transactions inferior articles are taken only at a lower price. The explanation is easily understood, when furnished; it consists in stating the difference between a commodity which is sought for its use, and money which is taken as merely a medium of exchange. Provided that coin is not too bad for further circulation it will be accepted without difficulty. Still less will there be any trouble if the difference is only in the relative value of two metals, such as silver and gold. The great majority of any population will give and take money without particularly observing it. ”

“ Nor does this exhaust the list of services that money renders. In the earlier stages of economic life it acts as a store of value; for in no other way could a large body of wealth be concentrated. Though this is no longer needed by individuals, even at the present day the great banks find that their reserves must take the form of a monetary store. ”

“ The Persian kings from the time of Darius levied tribute on all their provinces—in gold from India, in silver from the remaining districts, the larger part of which was stored up in the royal treasuries. This tendency of despotic rulers to accumulate treasure had all through ancient history important effects on the economic structure of society. ”

“ Money should also be durable, a requirement which leads to the exclusion of all animal and most vegetable substances from the class of suitable currency materials. To be easily recognized is another very desirable quality in money, and moreover to be recognized as of a given value. Articles otherwise well fitted for money—use, e.g. precious stones, suffer through the difficulty of estimating their value. Finally, it results from the function of money as a standard of value that it should alter in its own value as little as possible. ”